GOODS & SERVICES TAX - GST

A PRESENTATION
BY
CONFEDERATION OF ALL INDIA TRADERS
NEW DELHI
 TAXATION POWERS
OF CENTRE
• Income Tax – on income, other than agricultural income
• Excise Duty – on goods manufactured or produced in
India
• Custom Duty – on imports and exports
• Service Tax – on specified services
• Central Sales Tax – on inter-State sale of goods
• Rates of Stamp Duty on 10 specified instruments

CONCURRENT LIST OF BOTH

• Stamp Duties, not including rates of stamp duty on 10
specified instruments.
TAXATION POWERS OF STATES
• VAT/Sales Tax - on purchase or sale of goods, other than
newspapers, within a State
• Excise duty - on alcoholic liquor for human consumption
• Rates of Stamp Duty – on other than 10 specified instruments
• Land Revenue
• Tax – on agricultural income
• Toll tax
• 􀂾 Taxes on:
• Land and buildings
• Entry of goods in a local Area (Entry Tax or Octroi)
• Consumption or sale of electricity
• Goods and passengers carried by road or inland waterways
• Vehicles
• Professions, Trades, Callings and Employments
• Luxuries, including taxes on entertainment, betting and gambling
 DRAWBACKS OF
CURRENT SYSTEM

– Confusion and Mistrust

– Complex and lacking in stability
– Hidden tax on exports, no state tax on
imports
– High transaction costs
– Narrow base
TASK FORCE FOR TAX REFORMS

• A ‘Grand Bargain’. One VAT – The Goods and Services Tax

(GST)
• The Kelkar Task Force was constituted with the mandate to
recommend measures to enable the Government of India to
implement the Fiscal Responsibility and Budget Management
(FRBM) Act, 2003, which seeks to eliminate revenue deficit by
March 31, 2008.
• As the main proposal for tax reform, Dr.Vijay Kelkar and his team
have recommended a single GST (Goods and Services Tax) –
replacing the Cenvat/excise duty, sales tax, service tax, etc. It
would use the VAT principle to tax consumption of almost all
goods and services – with full tax
• Credits for tax paid on purchase of all goods and services will be
available.
What is GOODS AND SERVICE TAX

• Goods and Service Tax is a tax on goods and services.

• It is leviable at each point of sale or provision of
service.
• At the time of sale of goods or providing the services
the seller or service provider can claim the input
credit of tax which he has paid while purchasing the
goods or procuring the service
• This is simply very similar to VAT.
• It can be termed as National level VAT on Goods and
Services.
• Only difference in this system is that not only goods
but also services are involved.
• The rate of tax on goods and services are generally the
same.
 GST-AT A GLANCE
Roadmap to GST

Extend scope to CST phase-out Extend scope to

Inter-state Sales Inter-state Sales

GST
VAT

Integrate Services, Imports & CENVAT

Bring AED items Move to single VAT Shift to destination

under VAT rate of 8% based VAT

 Recommend united effort for mega tax reform

 To develop roadmap & milestones
 To build consensus with States, Center & Empowered C ommittee
Committee
 Create awareness and acceptance for GST
GST: A UNIFICATION OF TAXES
• A GST classically entails unification of all levies on
goods and services. In the Indian context, this would
mean merging the following:

• Tax on manufacture of goods (excise duty levied by the

Centre).
• Tax on sale of goods (CST / VAT levied by both Centre
and states).
• Tax on services (levied by Centre and to some extent by
states such as Entertainment tax, electricity cess, etc).
GST WORLD WIDE
• In most countries of the world, a single VAT exist
which covers both goods and services
• All sectors are taxed with very few exceptions/
exemptions.
• Full tax credits on inputs –100% set off
• Canada and Brazil alone have a dual VAT
• India also likely to adopt dual GST Model based
on GST model of Canada w.e.f. 1st April 2010.
GST-KNOW TAXES PAID BY YOU

• We all will pay GST on every product or service we buy.

• Since 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.
 Why do we need
GST today
• In Indian economy the service sector
contributes over 55%.
• Separate taxation of goods and
services is neither viable nor desirable
• Value added in manufacture and sale of
goods require inputs of both — goods
and services and vice versa, which is
often not separable
 GST In India – A REALITY

• The stage looks all set for the

introduction of unified Goods and
Services Tax (GST) from 2010.

• The Empowered Committee of State

Finance Ministers has proposed a
dual GST — both at Central and
State level.
GST- HOW IT WORKS

• The dealers registered under GST (Manufacturers,

Wholesalers and retailers and service providers) will
charge GST on the price of goods and services from
their customers.

• They will claim credits for the GST included in the

price of their own purchases of goods and services
used by them.

• The sellers or service providers collect the tax from

their customer, who may or may not be the ultimate
customer, and before depositing the same to the
exchequer, they deduct the tax they have already paid.
 GST- WHAT ALL IT
INCLUDES
1. A sale or supply includes a sale of goods
2. Lease of premises
3. Hire of equipment
4. Giving advice
5. Export of goods and supply of other things.
6. A purchase includes an acquisition of goods or
services such as trading stock a lease,
consumables and other things.
GST- HOW IT WORKS
• If a business is registered for GST it must include GST in the
price of goods, services and other things they sell to others
in the course of business. These are called ‘taxable sales’.

• There are other types of sales where GST is not included in

the price.

• These are either ‘input taxed’ sales or ‘GST-free’ sales.

• GST may be included in the price of purchases (including

importations) made by a business, and it’s a good idea to
allow for it when setting prices.
•  
• When a business is registered for GST, they can generally
claim a credit for any GST included in the price they pay for
things purchased by the business. This is called a GST credit.
GST- RATES WORLD WIDE
No. of Countries : 140
• China - 17%
• Indonesia - 10%
• Philippines -10%
• Taiwan (Chinese Taipei) - 5%
• UK -17.5%
• Australia -10%
• France -19.6%
• Germany -16%
• Denmark -25%
 TAXES Proposed TO BE
SUBSUMED IN GST
• Central Taxes
Excise Duty
Additional Excise duty
Service Tax
CVD, SAD
Surcharge

• State Taxes
VAT
Entertainment tax levied by states
Luxury Tax
Tax on Lottery
Entry tax other than for local bodies
 TAXES NOT BE INCLUDED
IN GST

• Central Taxes
Specific Cess
Excise duty on tobacco products

• State Taxes
Items containing alcohol
Entertainment tax (Local Bodies)
Entry tax for local bodies
Electricity duty
 GST : KEY FEATURES
• Dual GST : Central GST & State GST

• Destination based State GST

• Common Base

• Uniform Classification

• Uniform Forms – Returns, Challans etc

• No cascading of Central and State taxes

• Cross credit between Centre and State not allowed

• Tax levied from production to consumption

 PROPOSED GST RATES

• 2 Rate Structure : Lower and Standard Rate

• Precious metals and stones very low rate

• GST Exemption for some times

• Some Goods at lower rate (excludes Ind. Inputs)

• Petroleum products, liquor and narcotics excluded

from GST regime
INDICATIVE GST RATES

• Exempted products :
– Food Grains, Bread, Salt, Milk, Vegetable, Meat,
Fish

• Goods at Lower Rate :

– Tea, Milk Powder, Coffee beans, Toy, Beedi,
Bicycles

• Govt. aided public health and education

exempted
User Charges likely to
be out of GST
   It has also suggested keeping levies like the toll tax,
environment tax and road tax outside the GST ambit, as these
are user charges

Likely Rate – 16 percent Total

• It is envisaged that the framework of dual GST would
embody multiple rate of taxes for goods , but a single
rate for services within a state . There are indications
that the rate could be in the range of 16-20 per cent.
The government is expected to come out with a white
paper on the transition to GST shortly .
GST : KEY FEATURES
• HSN to be applied for goods

• Uniform return & collection procedure for

central and state GST

• 13 digit PAN based common TIN

Registration

• TINXSYS to track transactions

 GST : AUTHORITIES
• CGST – To be administered by Central
Government.
• SGST – To be administered by State
VAT Department
• Inter State Transaction – To be
administered by A common Centralized
Authority
GST- AS WE LOOK AT
• India to have only two indirect taxes namely GST, both
Central GST & State GST, and Customs duty. 
• Central GST to include central excise, service tax and
education cess.
• State GST to include a combination of all taxes
presently levied by the state and octroi by
municipalities. CST needs to be phased out before
introduction of GST.
• Both Central GST and State GST to be levied on the
common base price from manufacturing stage to retail
stage on goods and similarly on services.
• Tax on sale of property to be levied on the value
addition under state GST and not on the total amount as
applicable presently
 GST- AS WE LOOK AT
• Input tax credit to be available for Central GST as well as
State GST paid irrespective of the collecting agency.

• Selection of services for imposing GST should continue with

the Central Government. States can be allowed to collect
dual GST on certain services, which are directly consumed
like beauty treatment, health club etc. State should Choose
and not the Centre should impose such services on them?

• Dual GST should be levied on imports also with facility of

credit for the tax paid.

• 9. Exports must be zero rated i.e. there should be no tax

element in the price of goods exported.
 TAXING OF INTER
STATE TRANSACTION
• 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

SEAMLESS CREDIT…

• 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.
 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
Imports could 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- IT’S 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-HOW OTHER COUNTRIES DO

• More than 130 countries have introduced GST in some

form.
• 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.
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.

• Through this, paper bills and fraud are largely eliminated.

• It is unfair to expect such an initiative to come from the

committee working on state VAT, given the lack of
sustained organisational capacity required.
ISSUES FROM TRADER’S
PERSPECTIVE
• Dialogue with Trade & Industry and all other stake holders

• GST code to be made public atleast 6-9 months before

implementation.

• Industrial inputs, Capital goods at lowest rate, say 1%

• List of exempted goods – specific/common across states

• Stock transfers should be exempted monitors thru system based

controls
ISSUES FROM TRADER’S
PERSPECTIVE
• All declaration forms (Form F, C) should be abolished

• Monitoring through system based controls

• Full set of Input tax credit to the assesses/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.
GST-NO TAX EVASION

• To check tax evasion, the Task Force has

proposed an IT-intensive 'Risk Intelligence
Network' (RIN).

• This would put three sets of databases

together – what the firm tells CBDT, what
it tells CBEC and what it puts forth to the
public, including shareholders.
 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.)
• Taxation of inter state services and
their method of taxation
• Stock transfer
• Road permits and check posts
 ADMINISTATIVE
ISSUES / Bottlenecks
• Grant of ITC for inter-state transactions by receiving
state depends on efficient banking and related
mechanism

• Lack of IT preparedness of certain States is a key

bottleneck

• Success of the proposed GST structure critically

depends on operation of the effective IT system

• Getting tax refunds for exempted goods based on

budgetary allocation may delay refunds
WHAT CAIT DEMANDS
• Traders are tax collectors & not the tax payers.
Therefore they should be correctly defined as
Tax Collectors under GST Taxation System.

• Traders should be reimbursed by the Govt. for

expenses incurred on collection of GST.

• Some sort of effective mechanism has to be

developed to ensure that benefit of reduction in
cost must be passed to end consumer. The large
manufacturers & companies may be advised by
virtue of law to declare their Pre-GST & Post-
GST cost of production to the respective State
taxation department.
WHAT CAIT DEMANDS
• Beside central & state taxes, the local Governing bodies like
Municipal Corporation etc are also levying several commercial
taxes. Either such taxes may also be amalgamated in GST or a
lowest uniform tax structure may be levied to avoid any kind
of disparity in taxes & rates between local bodies of different
states.

• The VAT registration Number should itself be construed as GST

no. & traders should not be asked to apply afresh. Further, the
procedure of obtaining new GST registration numbers should
be made simple & easy.

• The refund procedure in GST should be made quite simple & it

is to be ensured that within much reasonable time, the traders
should get back their refund and in case of delay, the traders
should be compensated with interest by the department.
WHAT CAIT DEMANDS
• In order to make the stakeholders aware about modalities of
GST and other related issues, an intensive nationwide publicity
campaign inclusive of workshops, seminars etc may also be
planned with the active assistance of trade associations.

• A special working group on GST may be formed both at Centre

& state levels with representatives of trade & industry for
preparing final roadmap of GST & its implementation.

• Since GST will be based on computerization system, it is

suggested that computer may be made available to traders on
subsidy to be provided by the Government.

• It is also suggested that GST software may be made available

to all traders & others section of the society free of cost.
THANK YOU
You were good audience