A Presentation

on

SALIENT FEATURES OF GOODS &

SERVICE TAX (GST)

At By
Residential Refresher Course Dr. Sanjiv Agarwal
Organized by ICAI CMI FCA, FCS,
Hosted by Goa Branch of WIRC Jaipur
June, 2012

Dr. Sanjiv Agarwal

 SALIENT FEATURES OF GOODS &
SERVICE TAX (GST)
This Presentation Covers :
Indian Economy- An overview
Taxonomy of Indian taxation
Present tax system suffer from
Need for GST
GST- Journey so far
What is GST and its key features
GST- Global perspective
GST- How it works ?
GST - Issues yet to be decided
Indian Economy An overview
Indias economy is the 11th largest economy in the world
and the third largest by purchasing power parity (PPP)
G-20 major economies and a member of BRICS
World is presently facing recession-II but Indian economy
is still better than comparable economies.
Agriculture, services and industry are the major sector of
India an economy. Contribution of different sectors in
March, 2012 was :
Agriculture 19%
Services 59%
Industry 22%
to be contd.
Indian Economy An overview
Growth in Tax GDP Ratio
Slow but Steady

Years Tax GDP ratio

2003-04 9.2%
2007-08 11.9%
2009-10 9.7%
2010-11 10.3%
2011-12 10.1%
 Power to Tax in India
Central Government and the State Governments under Part XI of Indian
Constitution have power to levy taxes.
Legislative power v Administrative power
Legislative power has three lists:-
Union list,
States list and
Concurrent list
Administrative power CBDT, CBEC
Union list consists of 100 items -Parliament has exclusive power to levy Tax.
State list consists of 66 items -Individual states have exclusive authority to levy Tax.
Concurrent list consists of 47 items - both governments can levy tax.

to be contd..
 Power to Tax in India
India has a two tier federal power to collect tax
the Union Government,
the State Governments including urban/rural local
bodies
Presently goods are liable to Vat / Excise / Customs duty
while taxable services attract service tax.
Certain transactions subject to both - Vat and Service
tax
Efforts to revamp the direct tax structure - New direct
tax code (Income Tax Act, 1961 & Wealth Tax Act, 1957
would be scrapped) proposed
Efforts to bring on a single indirect tax GST proposed
 Taxonomy of Indian Taxation
TAXATION POWERS OF UNION

Income Tax on income, except

agricultural income
Excise Duty on goods manufactured
Custom Duty on imports
Service Tax on specified services
Central Sales Tax on inter-state sale of goods
Stamp Duty on 10 specified instruments
To be
contd..
 Taxonomy of Indian Taxation

TAXATION POWERS OF STATE

VAT / Sales Tax - on sale of goods, other than

newspapers
Stamp Duty - on other than 10 specified instruments
Tax - on agricultural income
Toll tax - on utilities
Other taxes - on
Land and buildings
Entry of goods in local Area (Entry Tax or Octroi)
Consumption or sale of electricity
Vehicles
Luxuries including taxes on entertainment,
Betting and gambling
Alcoholic Liquor, Narcotic Drugs and Opium
Present tax system suffer from

Confusion and Mistrust

Complex and lacking in stability
Hidden tax on exports, no state tax on imports
High transaction costs
Narrow base
High compliance cost
To much litigations
Lack of harmony and inter state practices
Highly corruption
 Goods & Service Tax (GST)

A Common Tax on

Goods Services
 Pre-requisites for migrating to a
GST regime
Setting up of empowered committee for GST (like VAT) which can steer the
road map into action - done
Broaden the tax base for excise duty (presently 40% comes from petroleum
products) being done
Finishing area based and product based exemptions being done
Rationalization of concessions and exemptions including that on exports
being done
Expanding service tax to almost all services now proposed
Common/unified tax rate for goods and services which may be ideally,
revenue neutral (a suitable GST rate) dual tax proposed
Avoiding or minimizing differential tax rates under discussions
Abolition of other small taxes - under discussions
Abolition of CST in a phased manner - being done
Power to levy service tax on select/agreed services to States - under
discussions
Issue of inter-State services and goods movement vis--vis levy of duty or
tax to be sorted out - under discussions
Revenue sharing mechanism to be rationalized - under discussions
 GST - Journey so far
Feb, 2006 : First time introduced concept of GST and announced the date of its
implementation in 2010
Jan. 2007: First GST study by ASSOCHAM released by Dr. Shome
Feb. 2007: F.M. Announced introduction of GST from 1 April 2010 in Budget
April 2007 : CST phase out started - CST reduced to 3%, currently 1%
May 2007: Joint Working Group formed by EC
Nov. 2007: Joint Working Group submits report
April 2008 : Empowered Committee (EC) finalizes views on GST Structure
July 2009: FM announces commitment to bring GST from April 2010
Consultation on interstate services in progress

to be contd
 GST - Journey so far
Budget 2010
to achieve the roll out of GST by April 2011
Revamping of indirect tax administration at centre/ states
internal work processes based on use of information technology
- massive information technology (IT) platform
project ACES- Automation of Central Excise and Service Tax
rolled out
rate of service tax retained at ten per cent
states to revamp their internal work processes

to be contd
 GST - Journey so far
Budget 2011
non-committal on timing and roll out but the Government keen to bring in Constitutional
Amendment Bill
overall amendments targeted towards moving close to harmonize with GST regime in
future
major highlights of budget discussions/proposals on GST
DTC and GST to mark a water shed
Decisions on GST to be taken in concert with the states
Areas of divergence between centre and states narrowed
Constitutional Amendment Bill likely to be introduced in current session
Drafting of model legislation for central and state GST underway
Establishment of IT infrastructure in process (GST network)
NSDL selected as technology partner for GST
Tax rates maintained at same level of 10% to stay on course towards ST
Certain central excise rates changed to prepare the ground for transition to GST by reducing
number of exemptions
Nominal central excise duty of 1% imposed on 130 items, no Cenvat credit allowed on such
items.
In service tax, proposals aim to achieve a close fit between the present service tax regime
and GST.
 GST - Journey so far
Budget 2012
No announcement on GST rollout date
GST to be implemented in consultation with the States at the earliest
GST network (GSTN) likely to be in place from August, 2012
GSTN will implement common PAN based registration, return filing and
processing of payments for centre and all states on a shared platform.
Bringing closer of Service Tax and Central Excise for transition to GST
Drafting of modal legislation for CGST and SGST under progress.
Common forms for Service Tax and Central Excise registration and return
proposed.
Place of Supply Rules, 2012 to trigger debate to assess issues that may
arise in taxation of inter state services for eventual launch of GST.
ThePastJourney beginning
Now
of end
Future

Past Now Future

National GST Dual GST ???????

 GST today Need & Advantages
As a developing country, India needs a transparent & unambiguous tax structure
A complex tax structure with multiple rates of taxes
Multiple taxes across the supply chain
High transaction cost in the hands of the tax payers
Increased tax collections due to wider tax base and better compliance
Improvement in international cost competitiveness of indigenous goods and services.
Enhancement in efficiency in manufacture and distribution due to economies of scale
GST encourages an unbiased tax structure that is neutral to business processes, business models,
organization structure, product substitutes and geographical locations
Helping as a weapon against corruption
GST operates on a negative list i.e. all goods and services are subject to GST unless specifically exempted

to be contd..

 GST today Need & Advantages

Nature of complexities i.e. classification to valuation

regarding taxability, exist in the present structure.
Some of such burning issues are:
Excise on MRP
Excise, VAT and Service Tax on Software,
VAT & Service tax on:
Works Contracts
Right to Use
Composite Contracts such as AMC transactions

to be contd..
 GST today Need & Advantages

Tax cascading effect

Central Sales Tax (CST) on inter-state sales, collected by
the origin state and for which no credit is allowed by any
level of government being phased out now

Real estate transactions are outside the scope of both VAT

and CENVAT

Exempt sectors are not allowed to claim any credit for the
CENVAT or the service tax paid on their inputs
 What is GST
GST is a comprehensive value added tax on goods and services
It is collected on value added at each stage of sale or purchase in the supply chain
No differentiation between Goods and Services as GST is levied at each stage in the
supply chain
Seamless input tax credit throughout the supply chain
At all stages of production and distribution, taxes are a pass through and tax is borne by
the final consumer
All sectors are taxed with very few exceptions / exemptions
Full tax credits on inputs 100 % set off
In most countries, a single VAT exists which covers both goods and services.
Typically it is a single rate VAT but two - three rate VAT systems are also prevalent
India will be following multi rate / multi tier tax
Canada and Brazil alone have a dual VAT
Standard GST rate in most countries range between 15-20 percent
GST exists in over 140 countries .
 GST : Proposed Key Features
Dual GST : Central GST & State GST
Destination based State GST
Common Base
Uniform Classification
Uniform Forms Returns, Challans ( in electronic mode)
No cascading of Central and State taxes
Cross credit between Centre and State not allowed
Tax levied from production to consumption

to be contd..
 GST : Proposed Key Features
HSN to be applied for goods
One Common return for both Central and State GST
Uniform collection procedure for central and state GST
13 digit PAN based Common TIN registration
TINXSYS ( Tax Information Exchange System) to track transactions
States to collect CGST for SSI < 150 L and transfer to Central Government
Balance of Fiscal Autonomy to Center and States and need for
Harmonization
 Goods & Service Tax - GST
GST is expected to be more efficient system of taxation
Boost to the revenues of the Centre and states
Years Excise Service Tax
2000-01 68,282 2,612
2010-11 1,37,427 70,391
2011-12 1,50,600 95,000
2012-13 (target) 1,94,350 1,24,000
Taxes proposed to be subsumed in GST

Central Taxes
Excise Duty
Additional Excise duty
Excise duty under medicinal and toilet preparation Act
Service Tax
Additional Custom duty commonly k nown as countervailing duty ( CVD), special additional
duty( SAD)
Surcharge
Cess
State Taxes
Value added tax (VAT)
Entertainment tax levied by states
Luxury Tax
Tax on Lottery, betting and gambli ng
Entry tax other than for local bodies
State surcharge Cess /

to be contd..
Taxes proposed to be subsumed in GST

State governments still not have consensus on following taxes to be

subsumed in GST
Purchase tax
Octroi duty
Tax on alcoholic beverages (country liquor / IMFL)
Tax on petroleum products
Tax on tobacco items
 GST- WHAT ALL IT WILL INCLUDE

A sale or supply includes a sale of goods

Lease of premises
Hire of equipment
Giving advice
Export of goods and supply of other things.
A purchase includes an acquisition of goods or services such as
trading stock a lease, consumables and other things.
 GST : Global Perspective
More than 140 countries have introduced GST.
It has been a part of the tax landscape in Europe for the past 50 years.
It is fast becoming the preferred form of indirect tax in the Asia-Pacific
region.
It is interesting to note that there are over 40 models of GST currently in
force, each with its own peculiarities.
While countries such as Singapore and New Zealand tax 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,
replacement and processing services.
It is only recoverable on goods used in the production process, and
GST on fixed assets is not recoverable.
There is a separate business tax in the form of VAT.

to be
contd..
GST- RATES WORLD WIDE
Country GST Rates
China - 17%
Indonesia - 10%
Philippines - 10%
Taiwan (Chinese Taipei) - 5%
Australia - 10%
Germany - 16%
Denmark - 25%
Japan & Singapore - 5%
UK - 17.5%
France - 19.6%
New Zealand - 12.5%

to be contd..
 GST : Global Perspective
Goods and Services Tax in Canada
GST is a multi-level value added tax introduced on January 1, 1991.
The GST replaced a hidden 13.5% Manufacturers Sales Tax (MST).
As of May 18th, 2010, the GST rate is 5% and some goods & services are
exempt from GST zero-rated goods & services
Model has helped the Canadas economy to be more efficient and competitive
Goods and Services Tax in Japan
In Japan, VAT or GST is known as Consumption Tax (CT) introduced in
January 1989.
It requires re-calculation and payments to the tax authorities at each
transaction point in the onward sales chain.
The Japanese Consumption Tax rate is currently 5% and out of which 4% is
national levy and 1% regional levy.
There is an annual threshold of YEN 10 million, based on the base year of two
years prior to the tax year.

to be contd..
 GST : Global Perspective
Goods and Services Tax in Australia
Consumption tax is called Value Added Tax.
GST provisions are set out in a piece of Legislation called the A
New Tax System (Goods and Service Tax) Act 1999 and the GST
was implemented on 11th July, 2000.
GST@10% will be charged on most goods and services consumed
in Australia.
All imported goods are assigned a tariff classification obtained from
the Australian Customs Tariff which determines the rate of duty will
pay for the product.
GST is not intended to apply to goods and services which are
exported from Australia and there are specific provisions in the GST
law designed to make exports GST-free.

to be contd..
 GST : Global Perspective

Goods and Services Tax in Brazil

Brazil was the first country to adopt GST system.
Brazil has adopted a dual GST where the tax is levied by
both the central and the provincial governments.
GST rate is 20 %.
 GST- CAN WE ADOPT IT
An information network allowing states to cross-check payment information
(TINXSYS) has been put to trial and is expected to improve compliance and
reduce evasion.

What is needed is an IT system like the Tax Information Network (TIN),

where the TDS or the VAT credit is recorded in a central database.

Paper bills and fraud to be largely eliminated.

Obligations to be fulfilled by IT System

Registration
Return
Current status of the system
Refund
Tax Deposition
GSTN to be operational by August, 2012
Features of Dual GST Model

Dual levy by Centre & States

Various taxes that get subsumed in GST
Manner of Implementation
Dual Chain vis a vis Single Chain
Inter-chain VAT ability
Inter State VAT ability
Items included in each chain
Dual rates of taxation
Key Features of Credit Mechanism

CGST can be set off against CGST

SGST can be set off against SGST
CGST cannot be used for set off against
SGST and vice versa.
 Seamless Credit Mechanism

Input tax credit to be available for Central GST as well as

State GST paid irrespective of the collecting agency

Create a nationwide clearinghouse mechanism to

facilitate transfer of Central and State GST and allow
credit for tax paid
 Seamless Credit Mechanism

It will also end the distortion in differential tax

treatment of various goods and services.
GST is going to be pinnacle of achieving an
integration of excise duties, service tax, State
value added tax and other local taxes.
With GST, uniformity of levy of indirect taxes will
be ensured across the country.
 Central GST (CGST)

levied by the Centre through a separate

statute on all transactions of goods and
services made for a consideration.
Exceptions would be exempted goods and
services, goods kept out of GST and
transactions below prescribed threshold
limits.
CGST would be levied across the value chain.
Rates for CGST would be prescribed appropriately
reflecting revenue considerations and acceptability.
 State GST (SGST)
Levied by the States through statute on all transactions
of goods and services made for a consideration.
Exceptions would be exempted goods and services,
goods kept out of GST and transactions below
prescribed threshold limits.
Basic features of law such as chargeability, taxable
event, measure, valuation, classification would be
uniform across these Statutes as far as practicable.
State GST would be paid to the accounts of the
respective State.
 Inter-state Transactions

Centre would levy IGST which would be CGST +

SGST.
IGST would be levied on all inter-State
transactions of taxable goods and services with
appropriate provision for consignment or stock
transfer of goods and services.
Inter-State dealer will pay IGST after adjusting
available, IGST, CGST and SGST on purchases.
 IGST

The seller in State - A will pay the IGST to the

Centre.
While paying IGST the seller will adjust against
available credit of IGST, CGST and SGST.
State Government - A will have to transfer the
credit of SGST used by the seller for payment of
IGST to the Centre.

To be cont.
 IGST

Buyer in State - B can avail credit of the IGST

charged.
Buyer in State - B can use the IGST to discharge
output tax liability in his own State.
Centre has to transfer credit of IGST used for
payment of SGST to State Government - B.

.
 IGST ILLUSTRATION
Maharashtra seller selling to Karnataka buyer for
Rs.1,00,000/-.
IGST payable assuming an 8% rate is Rs.8,000/-.
Rs.8,000/- can be paid by adjusting
Inter-State purchases (IGST) Rs.3,000/-
Local purchases (CGST) Rs.1,500/-
Local purchases (SGST) Rs.1,500/-
Since dealer has used SGST of Maharashtra to the
extent of Rs.1,500/-, Centre has to transfer Rs.1,500/-
to Maharashtra Government.
 IGST ILLUSTRATION

IGST of Rs.8,000/- is availed as credit by Karnataka

buyer.
Karnataka dealer sells the goods at Rs.2,00,000/-
attracting CGST of say Rs.16,000/- and SGST of
Rs.16,000/-.
If IGST of Rs.8,000/- is used to pay the SGST then
Karnataka Government has to transfer Rs.8,000/- to the
Centre.
ILLUSTRATION OF GST
Taxing of Inter State Transactions

Tax Payment by exporting dealer to the account of receiving

state
Credit allowed to the buying dealer by receiving state on
verification
Retention by receiving state on sale to non-dealer
Declaration form to be discontinued
 Knowing more about GST

We all will pay GST on every product or service we buy/ consume

All indirect taxes levied by the States and the Centre will be merged
into one GST, we would exactly know how much tax we pay which at
present is difficult to understand.

No distinction would be made between imported or Indian goods and

they would be taxed at the same rate.

The sellers or service providers collect the tax from their customer.

Before depositing the same to the exchequer, they deduct the tax they
have already paid.

The success of GST would rest upon efficiency, equity and

simplicity.
 GST- How It Works

Dealers will charge GST on the price of

goods and services.
Claim credits (CENVAT) on purchases of
goods and services.
collect the tax from their customer, and
deduct the tax already paid.
 Imports should be taxed?

Dual GST should be levied on imports also with

facility of credit for the tax paid

Exports must be zero rated i.e. there should be

no tax element in the price of goods exported
 Tax Exemptions

Area Based
To be discontinued after current eligibility period
Product Based
To be converted in to refund route
Limited Flexibility
To Centre & States barring few exceptions
 GST- Its System
Invoice System

In this system, the credit of GST paid is claimed on the basis of

invoice.
It is claimed when the invoice is received.
It is immaterial whether payment is made or not.
The GST (Output) is accounted for when invoice is raised.
The time of receipt of payment is immaterial.
The advantage of invoice system is that the input credit can be
claimed without making the payment.
The disadvantage of the invoice system is that the GST has to
be paid without receiving the payment.
 GST - Challenges

Rapid increase in assessee

Place of supply even after place of supply
rules
Legislative challenge
Effective credit mechanism
IT Infrastructure
Issues from Traders Perspective

Dialogue with Trade & Industry and all other stake holders

Industrial inputs, Capital goods to be at lower rate

List of exempted goods specific/common across states

Stock transfers should be exempted monitors through system based

controls
GST : Professional Opportunities
Knowledge management
Preparatory advisory
Cost benefit analysis
GST implementation
Training / seminars / awareness
Planning compliances
Advance ruling representation
Employment with corporates
Client retainerships
GST Audit
 Issues from Industrys
Perspective
All declaration forms (Form F, C) should be abolished
Monitoring through system based controls
Full set-off of Input tax credit to the assessee / entity, based on
principle of business cost and expenditure
Immediate credit of stock transfers, without one-to-one co-relation.
Set-off should be on entity / concern basis.
Refunds, if any, should be automatic through system based controls.
 Issues From Industrys Perspective

Multiple state jurisdictions.

Full set-off : a question mark
Building of IT backbone
Uniform legislation, forms, rules, rates, compliance requirements.
Any change post implementation should be uniform by all states not
piecemeal.

Bar on increase in rates, imposition of new taxes by states

 Issues Yet To Be Decided

Constitutional amendment authorizing state to

collect and retain tax on services.
Integration of certain Central & State taxes
(Various Cess, Electricity duty, Entertainment tax
etc)
Stock transfers
Road permits and check posts
to be contd.
 Issues Yet To Be Decided

Taxation of inter-state services and their method of taxation

Difficulties in defining Place of supply, place of delivery
Group Health Insurance
Consulting services
However most of the B2B services not a problem
because of availability of credit
Disputes even with regard to classification of goods
Jurisdictional Issues with regard to registration and SCN /
Assessments
 Favorable Impact on Industry

Seamless credit to trade and industry throughout supply

chain will improve competitiveness
Common Tax Base will eliminate tax cascading
CST phase-out will reduce supply chain cost
Economy in production scale & efficiency in distribution
Simplified structure to reduce transaction cost
 GST - Humor
Business Man: Sir do you really think that negative list of services is a
milestone in the road towards GST ?
CA: Well..I think it is not a milestone, it seems to be a Pavement to the
GST road.
Business Man: Not understood Sir !!
CA: I mean the negative list has a capacity to exist along with Centre-
state disconnects on the services to be covered there under which are
partially forming part of the GST disconnects.
Business Man: SirI still could not understand anything.
CA: OK.I will tell you in your language.states asked for35 services
to be included in the negative list.correct?
Business Man: Yes Sir.
Business CA: And Government kept only 17 services in the list and have
not included therein many services specified by the states. correct?

to be contd.
 GST - Humor
Business Man: Yes Sir.
CA: Now Empowered Committee of states is saying that their demand
was not taken into consideration and negative list will lead to double
taxation and litigation.correct?
Business Man: Yes Sir.
CA: So the negative list of services when implemented will Complement
the Centre -States contended road to GST, and can fit in as
pavement along with that road whenever it comes into
existence.Understood??
Business Man: No Sir..I mean. Yes SirI mean I will think over
itand am sure that I will understand!!!
 THANK YOU
FOR
YOUR
PRECIOUS TIME
AND
ATTENTION
Dr. Sanjiv Agarwal
FCA, FCS, Jaipur
asandco@gmail.com
sanjivservicetax@gmail.com