By: – abhi parakh – Goods and Services Tax – GST – Dated:- 28-7-2011 – – Goods and Service Tax An imminent stride towards a comprehensive Indirect tax structure Concept paper – Issues Challenges involved in successful implementation 1.0 Position Hitherto 1.1 The Indian Indirect Tax structure has come a long way since independence – (i) The 46 th Amendment to the Constitution of India (ii) MODVAT scheme in 1986 (iii) Service Tax vide the Finance Act 1994 (iv) inter-sectoral credit scheme in 2004 (v) State VAT 2005-2008. Notwithstanding the aforesaid, the existing structure still lacks the efficiency to reap benefits expected out of a comprehensive tax system 1.2 The Union Budget 2007 brought along a ray of hope amidst the complicated in-efficient Indian Indirect Tax structure in the form of an announcement as to the implementation of Goods and Service Tax. 1.3 The essential benefits of the proposed tax system and the issues
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on account of multiple check points, even intra-state at times 1.4 The proposed goods and service tax seeks to address the aforesaid issues including inter alia – (a) one single tax subsuming the host of existing levies like Central Excise, Service Tax, State VAT, Additional Duty of Customs, Central sales tax, Entry Tax, Octroi, stamp duty and cesses (b) free flowing larger pool of input credit (c) comprehensive destination based taxation hence transforming India into one single market (d) reduced compliances (e) free road movement with proposed mechanical manning hence faster and more reliable (f) single simpler statute hence an pro-assessee tax structure 2.0 Basis Structure of GST Before pondering over the issues challenges attached to the proposed levy, it would be of supreme importance to lay out the basic features of the proposed levy as presently envisaged. The documents released by the Government of India in pubic portal in this regard
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Union FM on 21-07-10 brought up the adoption of a single rate for services to the tune of 8% (both CGST SGST) and dual rate structure for goods in the range of 12 to 20% to be converged to 16% over a three year phase Input Tax Credit Mechanism – Larger pool free flow of credit Destination based GST hence – (a) shift of taxable event from production to consumption (b) revenue from inter-state transaction to accrue to the destination state not to the origin state, (c) exports to be zero rated and (d) imports to be subject to GST Existing exemptions remissions related to industrial incentives to be converted into cash refund schemes. Special Industrial Area Schemes to continue up to legitimate expiry time both for the Centre States. Any new exemption, remission etc. or continuation of earlier exemption, remission not to be allowed. In such cases, the Government to provide reimbursement after collecting GST. 3.0 ISSUES – to be addressed
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be the tax revenue that the government expects to generate out of the new tax system, interests of special sectors being securitised and political demands. The following may be noted in this regard – Threshold limits – uniformity to be maintained across SGST CGST as per `RTP and the speech of Union FM on 21-07-10 to be affixed at ₹ 10 lakhs for both CGST SGST thereby entailing a huge assessee base (about 5 million assessee), however the FDP` purported a lower threshold of ₹ 10 lacs for SGST higher one of ₹ 1.5 Crore for CGST Exemptions – Presently 99 items are exempt from both Central Excise State VAT, in addition 240 items are exempt from only Central Excise (post Union budget 2011) – as per GST propositions these 240 items would also be brought under tax net post GST implementation [speech of Union FM on 21-07-10] thereby aligning the list of exemptions Scope of the term `consideration – GST as presently envisaged would be a l
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at preliminary stages being virtually a pass-through, an exemption and incentive free tax system may also be justifiable. This may however, not be acceptable in the political circles, hence a refund model, as suggested in the `FDP `RTF could very well be a comfortable bargain. However, the transition of the incentives under the grand-father clause need be addressed appropriately by the new statute and adequate provisions need be incorporated to convert exemptions to refund schemes, since the GST chain should not be broken. (v) Treatment of Composite Contracts during the transitional phase – Composite Contracts are contracts that envisage both supply of goods rendering of services, the hitherto position hence necessitates taxation under multiple statutes since (a) the federal structure empowers the States to tax intra-state sale of goods and the Centre to tax supply of services (b) different rates for taxation of goods and services thereby entailing – Dispu
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N India integration of tax system as much as tax rates treatment of various constituents was concerned, thereby creating one single market. However, on account of political needs and conflicts the states diverted from the white paper issued by the EC and distorted the overall objectives of a flawless VAT system. The imminent GST should necessarily address the said flaw by setting up a system of taking key decisions on the structure of the statute. In this regard – The Constitution [one hundred and fifteenth amendment] Bill, 2011 (Bill no. 22 of 2011) vide insertion of Article 279A provides for the constitution of a Goods and Service Tax Council by the President of India, basic propositions in this regard are summed-up as under – Said council to comprise – (a) the Union Finance Minister (chair person) (b) the Union minister of the State in charge of revenue (c) Minister in charge of Finance or taxation or any other Minister nominated by each State Government. Deci
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e following issues related to taxation of inter-state transactions need to be addressed – Determine the appropriate model for taxing inter-state transaction Determination of taxing Jurisdiction – (a) in case of goods, GST since being a destination based VAT tax revenue to accrue to the state wherein the goods are finally consumed (b) in case of services, since intangible appropriate place of supply rules need be defined so as to determine the taxing jurisdiction under different genres of transactions Treatment of inter-state branch transfers – GST since purported to be a tax on transaction for consideration, branch transfers since not involving consideration should not prima facie be taxed [though, RTF has recommended levy of GST on inter-state stock transfer FDP has not explicitly conveyed the same in it discussion paper] Setting up of Central agency to control /or regulate the transfer of GST credit amongst states (viii) Compliance Procedures – m
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tter fruitful planning. In-order to overcome the hurdles it would be very important to identify them well in advance more so over ponder over them so as to derive viable solutions. Some of the imminent hurdles that could come in the way of GST Roll-out are detailed hereunder – (i) The Political scenario – Federal /or divided powers of taxation clubbed with a democratic framework of governance entail a situation wherein changes are driven by political requirements more than economic necessities – Implementation of a unified GST requires vesting of equal powers in the state central which in-turn mandates amendment of the Constitution of India [since presently constitution purports divided taxing powers]. Now, amendment of the Constitution where dealing with provisions relating to the states requires in addition to the approval by both the houses of Parliament, the approval of each every state legislative assembly. Thus, introducing impact of
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tion of a robust IT Infrastructure – a sound Information technology infrastructure is a pre-requisite for successful implementation of GST. The setting working up of the Central agency, E-filing and E-regulation of returns assessees would all require a hi-tech IT system. Moreover, such a system need be place substantially before the Roll-out of GST The CG with the approval of the EC has constituted an empowered Group chaired by Dr. Nandan Nilekani with joint representation from the Centre and the States which would be authorized to take decisions about the size, features and functionalities of such a system (iv) Timely completion of cadre review re-organization – of the excise and service tax commissionerates country-wide as GST commissionerates along with separate commissionerates for audit and anti-evasion would take time, and rushing the process through without much thought can prove disastrous for the tax department as lesson learnt from many mergers of
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maintaining the basic principles of the levy. Take for instance the recently released Constitution Amendment Bill proposes to keep Real Estate, petroleum, natural gas outside the purview of GST, thereby flawing the principle of comprehensive coverage and larger pool of credit. Moreover, it also proposes that Entry Tax is not to be subsumed thereby resulting in the carryover of the existing defect of multiple levies. Though the aforesaid propositions have not yet attained finality, they do expose the governments haste in Rolling-out GST that could well result in a flawed GST (vi) Post-implementation blues – the key performance indicator of successful implementation of GST is the continuance of uniformity. Promises commitments made at the time of VAT implementation were shrugged off by the states by diverting from the rate structure other provisions. Hence it would be very important to ensure that appropriate arrangements are made so as to prevent /or
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