Presented By CA Swatantra Singh, B.Com , FCA, MBA

1. Presented By CA Swatantra Singh, B.Com , FCA, MBA Email ID: singh.swatantra@gmail.com New Delhi , 9811322785, www.caindelhiindia.com, www.carajput.com

2. GST – Where are we and what next ?

3. To recapitulate – GST Principles Business Imports - Taxed Business Exports – Relieved of tax Internal trade – Tax sticks to goods

4. GST Model Central Level GST…… State Level GST…… Centre and State to legislate, levy and administer

5. How is it different from current system ?

6. Central VAT/Service Tax to GSTCurrent and Proposed Design Features • Tax on manufacture of goods & provision of services – Tax on supply of goods & services • Multi point tax with input tax credit - same • Standard rate across country – national level - same • Exports – zero rated – almost full input tax credit – same • Imports –subject to CenVAT/Service tax - same

7. Central VAT/Service Tax to GSTCurrent and Proposed Design Features • Invoice based credit system - same • Registered dealer concept for maintaining chain – not required • Value added by trade not captured – will be captured Origin based Manufacturing Sector Goods VAT & Service Sector VAT to Central GST

8. State VAT to State GSTCurrent and Proposed Design Features • Tax on sale of goods – services not covered – services will be covered • Multi point tax with input tax credit - same • Exports – zero rated – full input tax credit for state VAT and partial for service tax - same

9. State VAT to GSTCurrent and Proposed Design Features • Imports – tax free – will be taxable • Invoice based credit system - same • Value added by trade for goods captured – same Destination based Trade Sector Goods VAT to S-GST

10. To what advantage – why dual model ?

11. Two level GST - merits • Achievable from constitutional perspective • No adverse impact on Central and State Government revenues/ cash flows • No need for major shift in staffing requirements • GST on import of goods – issue of unequal treatment of domestic and imported goods addressed • Exports can be relieved of taxes – more competitive

12. Revenue Receipts- Indirect Taxes (State level) * Comprises of General Sales Tax, Central Sales Tax, Sales Tax on motor spirit and Purchase Tax on sugarcane, etc. Source: Economic Survey 2006-07 and State Finance report from RBI website

13. Two level GST - Demerits • Cost of compliance for businesses- will continue to be high • Apprehensions/risks continue: • Variable rates/Exemptions/trade diversion • Non uniformity of classification • Double taxation – overlap between states and Centre and states • Multiplicity of litigation……. “Feel Good” Factor ( ? )

14. International Comparatives? • Australia ? • United States of America ? • Canada ? • Brazil ? • EU ?

15. Major Reform….what is reform ? A tax loophole is something that benefits the other guy. If it benefits you, it is tax reform. Full of challenges

16. Issues and Challenges Comprehensive Basic exemption Rates Taxes to be Subsumed Constitutional Amendment Interstate sales Goods & Services Number of laws Input tax credit Classification Valuation

17. Constitutional Amendments • Central List • State List • New List ??

18. Taxes to be subsumed? • Central Level • State Level

19. Comprehensive • Sin/Demerit goods? • Services ?

20. Statute/Rules • Two • 28 +

21. Rates • Same at Centre and State/for goods & services? • Same for intra state and interstate transactions ? • Same for special types of transactions like works contracts, leases ? • How many ? Fixed / Variable – flexibility within range ? Exemptions ? • Who should determine ?

22. GST Rates - International comparison 35.0 24.1 30.0 25.0 20.0 19.6 19.0 17.5/15 17.0 20.0 15.0 14.0 13.0 12.5 15.0 10.0 10.0 5.0 0.0 UK Italy New India Africa China South Mexico France Canada Zealand Australia Germany GST Rates - International comparison * CENVAT: 10.3 % + VAT;12.5 % Source: KPMG

23. Classification • Common across the country? • Interpretations – how to ensure uniformity?

24. Valuation • Tax base for both levels same ? • Common across the country ? • Interpretations – how to ensure uniformity? • MRP based and like – should continue ?

25. Interstate Transactions • Intra-state and Inter-state Trade – avoid double and no taxation • Goods • Services • Central Sales Tax Act – abolition or modification?

26. 25000 19345 20000 17371 14284 15000 10000 5000 0 2004-05 2005-06 (RE) 2006-07 (BE) CST collection Central Sales Tax Budgetary support of Rs 5495 crore Source: State finance report from RBI website; Budget speech 2007-08

27. Proposed IGST Model Manufacturer (Maharashtra) CGST + SGST Buyer (Maharashtra) IGST Buyer (Delhi) 27

28. Impact of taxing Inter-state stock transfers: Illustration • Company A manufactures Product P which is stock transferred at INR 1000 28

29. Input Tax Credit • Comprehensive for each level • Central to Central and State to State • Restrictions and limitations – capital goods, consumables, promotional materials, fuel? • Deemed sale transactions • Interpretations – how to ensure uniformity ?

30. Proposed Credit utilisation under GST

31. Basic Exemption • Common or different? • For goods and services • For Central GST and State GST • Between States • Should apply on cumulative basis?

32. Others • Incentive Schemes • Records • Advance Rulings • Assessments / Audits • Transition provisions …… & More……

33. Other Issues Taxable event – sale / supply (for inter-state) / raising of invoice MRP scheme to be abolished Impact on high seas sales, exemption to in-transit sales? Job work – whether supply of ‘goods’ or ‘service’? Job work arrangements - valuation, treatment of credit etc Transition related matters – closing stock, accumulated credit 33

34. Central Indirect Tax Regulatory Authority/GST Council… …formalization of EC... … a possible solution ?

35. Road ahead – what businesses ought to do?

36. What this transition will entail Changes in effective tax rates for supplies as well as purchases Transactions/ Supplies which are currently exempt from tax may become liable to GST, and vice-versa Input taxes which are currently a cost may be eligible as ‘credit’ in future Special tax computation schemes, valuation provisions may be amended/ withdrawn 36

37. Compute GST Liability 100 Import goods Pur goods in Maharashtra Sale in Maharashtra 60 150 Interstate Purchase 40 Stock transfer to Gujarat 80 Import - Tech services 50 Sale to Rajasthanconsumer 100 Interstate Services 40 Sale to Madhya Pradesh dealer 70 Domestic Services 10 Manufacturer-Maha Assumptions C-GST: 12 % S-GST: 8 % I-GST: 20 %

38. Basic Elements of GST • GST is an indirect tax on consumption. • GST (multi-stage) is contemplated to be charged and collected at each stage of the production / processing / trading, on the value addition of goods and services • A dual GST is being proposed wherein a Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST) will be levied on the taxable value of a transaction. • Imports would be subject to GST.

39. Basic Elements of GST • Exports would be zero-rated. • GST must contemplate set-off of tax paid on inputs / capital goods and services. • GST will require maintenance of accounts of tax paid on purchases and sales of goods and services. • In a GST regime the tax component in any transaction is identifiable /computable

40. VAT vs GST - Preamble VAT / CST GST GST will be governed under List I of the Seventh Schedule GST will be governed under List II of the Seventh Schedule Or Possible that both CGST and SGST will be governed under List III of the Seventh Schedule • Governed under entry no. 54 of List II and entry no. 92A of the List I to the Seventh Schedule

41. VAT vs GST – Preamble VAT / CST GST It appears that Article 286 may continue even under GST regime with certain modifications to include interstate movement of goods and principles relating to services • Article 286 lays down the principles for formulating the transactions relating to export / import / sale effected outside the State

42. GST Preamble • Taxes most likely to be subsumed by GST • Central Excise • Service tax • Additional duty of customs • VAT • Entry tax not in lieu of Octroi • Luxury tax, Entertainment tax, Electricity taxes. Most of the Local laws, except stamp duty. • State surcharges related to supply of goods and services Customs duty will remain outside GST

43. VAT vs GST – Preamble VAT / CST GST It appears that even under GST regime there will be 29 SGST laws and one CGST law. IGST law will be favoured in respect of inter-State movement of Goods. The taxes charged under IGST could be available for set-off. • Currently there are 29 State VAT laws • CST law – applicable in case of inter-State transaction and subject to tax at the rate of 2% (against C Form) or local rate (without C Form) as the case may be

44. VAT vs GST - Preamble VAT / CST GST Same will be the case even under GST regime No set-off will be allowed under other State levies It appears there will be certain restrictions in respect of allowing set-off of Central GST against State GST or vice versa. Further Customs duty paid may not be allowed as set-off under State GST. • VAT is not adopted in its pure form • No set-off is allowed on central sales tax paid and other State levies such as luxury tax, entry tax etc

45. VAT vs GST - Preamble VAT / Service Tax / Excise GST Under CGST / SGST – Goods will be listed for the purpose of levy of taxes. This will be based on the HSN classification Services will be defined as – those which are not goods. The law will only list down the exempted services. • Under VAT law – Goods are listed for the purpose of levy of taxes • Under Service Tax – Taxable services are defined • Under Excise Law – Excisable Goods are listed for the purpose of levy of taxes

46. VAT vs GST - Registration VAT/CST GST Registration is mandatory under SGST –threshold limits will be in the range of Rs. 10 lakhs. CGST – threshold limits will be in the range of Rs. 10 lakhs Two registration numbers may be applicable – one for CGST based on PAN number and other for SGST State wise which may include KTEG / PT • Registration mandatory if the total turnover is in excess of Rs. 2 lakhs (Rs. 1 lakh in certain cases). • One registration number (TIN) applicable for VAT / CST / KTEG / PT.

47. VAT vs GST - Transitional Provision VAT / CST GST Transitional provisions – Set-off may be allowed in the following manner: Excise duty / service tax (CENVAT credit) will be allowed only against Central GST; VAT will be allowed to be set-off only against State GST; CST paid would not be entitled for set-off; Credits relatable to immediately preceding 6 months or 1 year and are lying in the stock / WIP in respect of goods. Services is an issue. • Transitional provisions – allowed to avail set-off only in respect of those purchases which are: • effected within the State; • effected within one year; and • Lying in the closing stock

48. VAT vs GST – Output tax / Output service VAT GST Applicable on both goods and services In respect of goods, the SGST levy will be origin based whereas in respect of service tax the levy will be consumption based. The rate of tax that may be followed by different States are: Central GST - 8% to 10%, 0%, 1%, 4%, 20% and exempt State GST - 8% to 10%, 0%, 1%, 4%, 20% and exempt. • Applicable on sale of goods • It is an origin based levy The rate of tax followed by different States are: • 1%, 4%, 7.5%,8%, 12.5%, 20%, 2%, 5%, 15% etc

49. VAT vs GST – Output tax / Output service VAT / CST GST It appears that KST / VAT / CST law will continue parallelly even under the GST regime and may not be repealed till such time litigation concludes and time for revision exists. In respect of inter-State movement of goods IGST will be introduced. • Few commodities are subject to tax under the KST law even after VAT is introduced.

50. Integrated GST (IGST) • In case of inter-State movement of goods • The dealer is required to pay IGST. • IGST will be administered by the Central Government. • The buyer will be entitled to avail IGST as credit and can claim set-off against only CGST or IGST