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AllaboutGST
TheGoodsandServiceTax(GST)isataxlikelytobeimplementedinIndia,from1stApril2016.
GST is proposed to be a comprehensive indirect tax to be levied on manufacture, sale and
consumption of goods as well as services at the national level. It will substitute all indirect
taxesleviedongoodsandservicesbytheCentralandStateGovernmentsinIndiaasofnow.Itis
aimedatbeingcomprehensiveformostgoodsandservices.
IntroductionofGoodsandServicesTax(GST)willindeedbeanimportantperfectionandthenext
logical step towards a widespread indirect tax reforms in India. Initially, it was conceptualized
that there would be a national level goods and services tax, however, with the release of First
DiscussionPaperbytheEmpoweredCommitteeoftheStateFinanceMinisterson10.11.2009,it
hasbeenmadeclearthattherewouldbeaDualGSTinIndia,i.e.taxationpowerlieswithboth
bytheCentreandtheStatetolevythetaxesontheGoodsandServices.Almost150countrieshave
introducedGSTinsomeformsincenow.WhilecountriessuchasSingaporeandNewZealandtax
virtually everything at a single rate, Indonesia has five positive rates, a zero rate and over 30
categories of exemptions. In China, GST applies only to goods and the provision of repairs,
replacementandprocessingservices.GSTratesofsomecountriesaregivenbelow:
Country
RateofGST
Australia
10%
France
19.6%
Canada
5%
Germany
19%
Japan
5%
Singapore 7%
Sweden
25%
NewZealand 15%

In India, government proposed the GST rate at 27% which is well above the global average of
16.4%forsimilartaxes.
But,OurFinanceMinister,Mr.ArunJaitleytoldlawmakersthattheproposedrateistoohighand
neededtobemuchmorediluted.ButsomestatesareaskingforanevenhigherratesforGST.
Exemptions and exceptions have also been worked into the GST bill. This tax does not apply to
alcoholandpetroleumproducts.Thesewillbetaxedseparatelyatfirst.Andmanufacturingstates
willbeallowedtolevyanadditionaltaxof1%onsupplyofgoods.
Worldoverinalmost150countriesthereisGSTorVAT,whichmeanstaxongoodsandservices.
UndertheGSTscheme,nodistinctionismadebetweengoodsandservicesforlevyingoftax.In
otherwords,goodsandservicesattractthesamerateoftax.GSTisamultitiertaxwhereultimate
burden of tax fall on the consumer of goods/services. It is called as value added tax because at
every stage, tax is being paid on the value addition. Under the GST scheme, a person who was

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every stage, tax is being paid on the value addition. Under the GST scheme, a person who was
liabletopaytaxonhisoutput,whetherforprovisionofserviceorsaleofgoods,isentitledtoget
inputtaxcredit(ITC)onthetaxpaidonitsinputs.
OBJECTIVESOFGST: One of the main objective of Goods & Service Tax(GST) would be to
eliminatethecascadingeffectsoftaxesonproductionanddistributioncostofgoodsandservices.
Theexclusionofcascadingeffectsi.e.taxontaxwillsignificantlyimprovethecompetitivenessof
originalgoodsandservicesinmarketwhichleadstobeneficialimpacttotheGDPgrowthofthe
country.ItisfeltthatGSTwouldserveasuperiorreasontoachievetheobjectiveofstreamlining
indirect tax regime in India which can remove cascading effects in supply chain till the level of
finalconsumers.
BENEFITSOFGST:
GSTwillendcascadingeffects:ThiswillbethemajorcontributionofGSTforthebusiness
andcommerce.Atpresent,therearedifferentstatelevelandcentrelevelindirecttaxleviesthat
arecompulsoryoneafteranotheronthesupplychaintillthetimeofitsfinalconsumption.
GrowthofRevenueinStatesandUnion:ItisexpectedthattheintroductionofGSTwill
increasethetaxbasebutlowersdownthetaxratesandalsoremovesthemultiplepointtaxation.
Thiswillleadtohigheramountofrevenuetoboththestatesandtheunion.
Reduces transaction costs and unnecessary wastages: If government works in an
efficient mode, it may be also possible that a single registration and a single compliance will
suffice for both SGST and CGST provided government produces effective IT infrastructure and
integrationofstateslevelwiththeunion.
Eliminatesthemultiplicityoftaxation:Oneofthegreatadvantagesthatataxpayercan
expect from GST is elimination of multiplicity of taxation. The reduction in the number of
taxationapplicableinachainoftransactionwillhelptoreducethepaperworkandcleanupthe
currentmessthatisbroughtbyexistingindirecttaxationlaws.
One Point Single Tax: Another feature that GST will hold is it will be one point single
taxation.Thisalsogivesalotofcomfortsandconfidencetobusinesscommunitythattheywould
focusonbusinessratherthanworryingabouttheirtaxationthatmaycropatlaterstages.Thiswill
helpthebusinesscommunitytodecidetheirsupplychain,pricingmodalitiesandinthelongrun
helps the consumers being goods competitive as price will no longer be the function of tax
componentsbutfunctionofsheerbusinessintelligenceandinnovation.
Reducesaveragetaxburdens:UnderGSTmechanism,thecostoftaxthatconsumershave
tobearwillbecertainanditisexpectedthatGSTwouldreducetheaveragetaxburdensonthe
consumers.
Reducesthecorruption:ItisoneofthemajorproblemsthatIndiaisoverwhelmedwith.We
cannotexpectanythingsubstantialunlessthereexistsapoliticalwilltorootitout.Thiswillbea

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cannotexpectanythingsubstantialunlessthereexistsapoliticalwilltorootitout.Thiswillbea
steptowardscorruptionfreeIndianRevenueServices.
Present CST will be removed and need not to be paid. At present there is no input tax credit
availableforCST.
Therearemanyindirecttaxesinstateandcentrallevelcurrently,whichwillbeincludedbyGST.
i.e.youneedtopayasingleGSTinsteadofallofthem.
Uniformityoftaxratesacrossthestates
Ensurebettercomplianceduetoaggregatetaxratereduces.
By reducing the tax burden the competitiveness of Indian products in international market is
expectedtoincreaseandtherebydevelopmentofthenation.
Pricesofgoodsareexpectedtoreduceinthelongrunasthebenefitsoflesstaxburdenwouldbe
passedontotheconsumer.
OtherfeaturesoftheGSTmodel
(I)TheGSTshallhavetwocomponents:oneleviedbytheCentre(referredtoasCentralGSTor
CGST), and the other levied by the States (referred to as State GST or SGST). Rates for Central
GST and State GST would be approved appropriately, reflecting revenue considerations and
acceptability.
(II)TheCGSTandtheSGSTwouldbeapplicabletoalltransactionsofgoodsandservicesmade
foraconsiderationexcepttheexemptedgoodsandservices.
(III)TheCGSTandSGSTaretobepaidtotheaccountsoftheCentreandtheStatesrespectively.
(IV)SincetheCGSTandSGSTaretobetreatedindividually,taxespaidagainsttheCGSTshallbe
allowedtobetakenasinputtaxcredit(ITC)fortheCGSTonlyandcouldbeutilizedonlyagainst
thepaymentofCGST.
(V)CrossutilizationofITCbetweentheCGSTandtheSGSTwouldnotbepermittedexceptinthe
caseofinterStatesupplyofgoodsandservices.
(VI)Ideally,theproblemrelatedtocreditaccumulationonaccountofrefundofGSTshouldbe
avoidedbyboththeCentreandtheStatesexceptinthecasessuchasexports,purchaseofcapital
goods,inputtaxathigherratethanoutputtaxetc.
(VII)Totheextentfeasibletothegovernment,uniformprocedureforcollectionofbothCGSTand
SGSTwouldbeprescribedintherespectivelegislationforCGSTandSGST.
(VIII)TheStatesarealsooftheviewthatComposition/CompoundingSchemeforthepurposeof
GST should have an upper ceiling on gross annual turnover and a floor tax rate with respect to

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GST should have an upper ceiling on gross annual turnover and a floor tax rate with respect to
grossannualturnover.
(IX)Thetaxpayerwouldneedtosubmitperiodicalreturns,incommonformatasfaraspossible,
toboththeCGSTauthorityandtotheconcernedSGSTauthorities.
Indirect taxes that will be included under GST : The following indirect taxes from state
andcentrallevelisexpectedtobeintegratedwithGST
Statetaxes
VAT/SalesTax
EntertainmentTax(unlessitisleviedbylocalbodies)
LuxuryTax
Taxesonlottery,bettingandgambling.
Statecessandsurchargesinsofarastheyrelatetosupplyofgoodsandservices.
Entrytaxnotoninlieuofoctroi.
CentralTaxes
CentralExciseDuty.
AdditionalExciseDuty.
TheExciseDutyleviedunderthemedicalandToiletriesPreparationAct
ServiceTax.
AdditionalCustomsDuty,commonlyknownascountervailingDuty(CVD)
SpecialAdditionaldutyofcustoms(SAD)
Surcharges
Cesses.
TheabovetaxesdissolveunderGSTinsteadallofthese,onlyCGST&SGSTexists.
ImpactofGoodsandServiceTax:
FoodIndustry:TheapplicationofGSTtofooditemswillhaveasignificantimpactonthose
whoarelivingundersubsistencelevel.Butatthesametime,acompleteexemptionforfooditems
would drastically shrink the tax base. Food includes grains and cereals, meat, fish and poultry,

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milkanddairyproducts,fruitsandvegetables,candyandconfectionary,snacks,preparedmeals
for home consumption, restaurant meals and beverages. Even if the food is within the scope of
GST,suchsaleswouldlargelyremainexemptduetosmallbusinessregistrationthreshold.Given
the exemption of food from CENVAT and 4% VAT on food item, the GST under a single rate
wouldleadtoadoublingoftaxburdenonfood.
HousingandConstructionIndustry:InIndia,constructionandHousingsectorneedtobe
included in the GST tax base because construction sector is a significant contributor to the
nationaleconomy.
FMCG Sector: Despite of the economic slowdown, India's Fast Moving Consumer Goods
(FMCG) has grown consistently during the past three, four years. Implementation of proposed
GSTandopeningofForeignDirectInvestment(F.D.I.)areexpectedtofuelthegrowthandraise
industry'ssize.
RailSector:TherehavebeensuggestionsforincludingtherailsectorundertheGSTumbrella
tobringaboutsignificanttaxgainsandwidenthetaxnetsoastokeepoverallGSTratelow.This
willhavetheaddedbenefitofensuringthatallinterstatetransportationofgoodscanbetracked
throughtheproposedInformationtechnology(IT)network.
Financial Services: In most of the countries GST is not charged on the financial services.
Example,InNewZealandmostoftheservicescoveredexceptfinancialservicesasGST.Underthe
servicetax,Indiahasfollowedtheapproachofbringingvirtuallyallfinancialserviceswithinthe
ambit of tax where consideration for them is in the form of an explicit fee. GST also include
financialservicesontheabovegroundsonly.
Information Technology enabled services: To be in sync with the best International
practices, domestic supply of software should also attract G.S.T. on the basis of mode of
transaction.Henceifthesoftwareistransferredthroughelectronicform,itshouldbeconsidered
asIntellectualPropertyandregardedasaservice.Andifthesoftwareistransmittedonmediaor
any other tangible property, then it should be treated as goods and subject to G.S.T.
Implementation of GST will also help in uniform, simplified and single point Taxation and
therebyreducedprices.
ImpactonSmallEnterprises:TherewillbethreecategoriesofSmallEnterprisesintheGST
regime.
(a)ThosebelowthresholdneednotregisterfortheGST
(b)Thosebetweenthethresholdandcompositionturnoverswillhavetheoptiontopayaturnover
basedtaxoropttojointheGSTregime,
(c)ThoseabovethresholdlimitwillneedtobewithinframeworkofGST.
Possible downward changes in the threshold in some States consequent to the introduction of
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Possible downward changes in the threshold in some States consequent to the introduction of
GSTmayresultinobligationbeingcreatedforsomedealers.Inthiscaseconsiderableassistance
isdesired.InrespectofCentralGST,thepositionisslightlymorecomplex.

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