FIRST DISCUSSION PAPER ON GST : AT GLANCE

INTRODUCTION

·         Presently multiple taxes are imposed on various transactions in the supply chain by the Central and state governments.

·         Most taxes cannot be adjusted  against each other.

·         Total  indirect taxes on goods is estimated at 25% and 10% in case of  services.

·         This cascading effect results in significantly increasing the cost of goods and services.

·         Tax compliance and administration is complex and burdensome.

·         There was a genuine need for revamping the entire system of indirect taxation.

·         Introduction of a comprehensive VAT system was the first phase of reform.

·         Proposal of a comprehensive goods and services tax (GST) is the next logical phase of reform.

·         The first discussion paper on GST is the draft of a comprehensive GST regime. It is the first effort by the government to engage with key stake holders in the implementation of the GST.

WHY GST?

• Expected to reduce the tax burden on goods.
• Create a national market for goods and services.
• Check evasion and increase indirect tax revenues.
• Can also boost direct tax revenues  if  direct and indirect tax authorities share their databases.  

SALIENT FEATURES

·         GST is to have two rates. One levied by the Centre (Central GST or CGST) and the other by states (state GST or SGST).

·         Multiple state laws shall continuel. One for CGST and the rest for the respective SGST laws.

·         The basic features relating to chargeability , definition of whats taxable, valuation, classification etc. would be the same. However, the states will get limited flexibility  in formulating their respective SGST law.

·         The dual GST (CGST and SGST) shall cover all transactions in goods and services except exempted transactions and certain goods and services kept outside the GSTs purview.

·         Appropriate input tax credit offsets will be available against each such tax. CGST on inputs will be eligible to be set off against the CGST on outputs and the SGST on inputs will be eligible to be set off against the SGST on outputs.

·         No cross-utilisation will be possible across the two taxes. However, cross-utilisation within each tax across goods and services would be possible.

·         Threshold limit

o    CGST : Rs 1.5 crore for goods and  Rs 10 lakh for services.

o    SGST :  Rs 10 lakh for both goods and services.

·         Periodical returns shall have to be submitted , in common format as far as possible, to both the Central GST authority and to the concerned State GST authorities.

·         The Centre and states will have concurrent jurisdiction. Assessment, scrutiny and audit might be undertaken by the authority actually collecting the tax with information shared between Centre and states.

·         Each taxpayer would be allotted a PAN-linked Taxpayer Identification Number with a total of 13/15 digits.

WHICH TAXES REPLACED

GST will replace the following :

Central levies 

·         Central Excise Duty

·         Service tax

·         Additional Customs Duty

·         Special Additional Customs duty

·         Surcharges and cesses

State levies

·         State-VAT /sales tax

·         Entertainment tax

·         Luxury tax

·         Tax on lottery, betting and gambling

·         State cesses and surcharges and

·         Entry Tax (not including octroi and local government levies).

 Following taxes shall continue :

·         Taxes on alcohol, certain petroleum products like fuels.

·         Local taxes like octroi.

It is not clear whether following taxes are part of GST or not :

·         States Purchase tax on agricultural products etc.

·         Levies on natural gas.

·         Levies on real estate.

INTER-STATE SALES

·         An Integrated GST (IGST) for inter-state transactions. IGST= CGST + SGST.

·         The inter-state seller pays IGST on value addition after claiming available credits of IGST, CGST and SGST on his purchases.

·         The purchaser, in turn, can claim the IGST while paying his output SGST liabilities.

·         This is expected to maintain the uninterrupted chain of input tax credits.

·         It will ensure that no upfront payment of tax or significant blockage of funds occurs for the inter-state seller or buyer.

PROPOSED RATE STRUCTURE

·         Specific rates have not been mentioned. A standard rate of 14-16 % and floor rate of 8-10 % is expected.

·         Like VAT, tax shall only be on value addition at each stage

·         Under SGST, the rate of tax would be as under :

§  Goods of basic importance: Standard rate

§  Necessities: Lower Rate

§  Precious meta l: Special rate

§  Exempted items (like food items and farm goods): Nil Rate

·         The Centre may also have a two-rate structure for CGST, with some conformity in SGST rate levels.

·         For services, a single rate structure is proposed for both CGST and SGST.

·         The Central GST and State GST are to be paid to the accounts of the Centre and the States separately.

·         At present, exporters are being reimbursed only central taxes paid by them through various input duty reimbursement schemes. The taxes levied by the states are not being reimbursed, adding to their cost of production. Under GST, there would not be any CGST/SGST on export transactions. It is also expected that the proportionate input credits shall be refunded.

·         Similar benefits are also proposed for Special Economic Zones (SEZs), limited only to their processing zones.

·         However, transactions from an SEZ to a Domestic Tariff Area (DTA) customer will not carry any rate benefits .

·         GST is proposed to be applied to import transactions also. This would increase the landed cost of imports, full and complete setoff will be available on the GST paid on import of goods & services.

·         For Composition dealers, it is proposed that there would be a compounding cut-off at Rs. 50 lakh of gross annual turn over and a floor rate of 0.5% across the States.

EXISTING INCENTIVE SCHEMES

·         Tax exemptions now available as industrial incentives may be converted into cash refund schemes after collection of taxes.

·         Special Industrial Area Schemes in states such as Himachal Pradesh, Uttarakhand and the North East will continue until their  expiry.

·         Any new exemption or continuation of earlier exemptions is not proposed. In such cases, the Centre or state could provide reimbursements after collecting GST.

PLAN FOR FUTURE

A Joint Working Group of Central and state officials to :

·         Finalise necessary constitutional amendments.

·         Draft law for CGST and IGST

·         Prepare a model Act for SGST.

·         Draft Rules of CGST and SGST.

CONCLUSION

·         The GST model has considered the conflicting needs and concerns of states and Centre.

·         Both the Centre and states will have limited flexibility to change the tax rates, providing stability and certainty to trade and industry.

·         With the minimisation of exemptions, GST will broaden the tax base and lower the tax rates

·         Taxpayers will also have access to a dispute resolution and advance ruling mechanism under the GST regime.

·         The vision of a single GST regime in India has been diluted.

·         This may result in cutting down of  benefits of a single GST model.

·         Services would become slightly costlier.

·         Improper implementation and failure to address the problems of various stakeholders may result in a complex and cumbersome GST.

·         Significant issues like treatment of current Central and state level input credits, principles for identifying appropriate state jurisdictions, cash flow impact on accumulated SGST credits, manner of claiming export refunds, etc would also need to be formulated.