Presented By: CA Anirudh Sonpal

GST BASIC STRUCTURE

16th May, 2015

BARODA BRANCH OF ICAI

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To Recapitulate – The Journey so far….

2004 The Kelkar Committee Report

2006 & 2007 FM - GST to be Introduced w.e.f 1st April, 2010

November, 2009 Empowered Committee – First Discussion Paper

December, 2009 Report of the Task Force -13th Finance Commission

2010 FM – Roll out of GST by April, 2011

March, 2011 The Constitution (115th Amendment) Bill, 2011

July, 2014 FM – The debate whether to introduce GST must come to an end

December, 2014 The Constitution (122nd Amendment) Bill, 2014

February, 2015 FM - GST by 1st April, 2016

6th May, 2015 The Constitution (122nd Amendment) Bill, 2014 passed by Lok Sabha

12th May, 2015 The Constitution (122nd Amendment) Bill, 2014 - Rajya Sabha - Referred to Select Committee

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The inherent characteristic of GST being that it is a Value Added Tax

Does India presently have a VAT system of Indirect taxation?

• If yes, why GST?• If not, what does GST seek to achieve?• Is GST merely a Tax Reform structure?

Growth Ahead

GST

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Excise – 1986 - Modvat Credit on selected Goods2002- Cenvat Credit – all Goods2004- Comprehensive Cenvat Credit–

Goods and Services

VAT – States – 2005-2008

Service Tax – 1994 - Introduced on Selected services

2012 - Negative List based Taxation

Milestones – towards GST

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Any Tax on Supply of Goods or Services or both, other than on Alcohol for Human Consumption[Proposed Article 366 (12A)] For a consideration?

Goods – Includes all materials, commodities and articles[Article 366 (12)]

Services – means anything other than Goods[Proposed Article 366 (26A)]

GST - Defined

Courtesy - ICAI

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Excise Duty

Present Tax Structure

Entry No. 84, List I, Schedule

VII

Service TaxSales Tax / VAT

/ CST Customs

Duty

Entry Tax/ Entertainment

Tax

Residuary Entry No. 97,

List I, Schedule VII

Entry No. 54 of List II (VAT) and 92 A of List I (CST)

Entry No. 83, List I,

Schedule VII

Entry No. 52 & 62, List II,

Schedule VII

Taxable Event is Manufacture

Taxable Event is Provision of Service

Taxable Event is Sale

Taxable Event is Import &

Export

Taxable Entry is Entertainment

& Entry of Goods

Median Rate – 12.5 %

Single Rate - 14 %

Rate – 5 %,12.5 % & 20 %

Median Rate 24.72 %

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Integrated and Comprehensive Value Added Tax Structure

Applies to all stages on value addition in the value chain of taxable Supply of Goods and Services across the country (as against manufacture, sale or provision of service) except – Exempted Goods or Services - common list for CGST & SGST Goods or Services outside the purview of GST Transactions below Threshold limits

Destination based Taxation – Place of Supply

Uniform Tax Structure across country

Avoid Cascading Effect of Taxes & Double/Multiple Taxation No tax on tax – VAT on ED component? No Classification issues -Valuation – Sale vs Service? Works Contract?

Deemed Taxation?

Seamless Flow of Cenvat Credit

GST – Important Features & Objectives

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Raw Material

Manufacturer

Wholesaler

Retailer

RS. 100 RS. 20

RS. 160

RS. 200

RS. 250

RS. 32

RS. 40

RS. 50

Eg: GST Rate is 20 %

VAT @ 20% = Rs. 12(i.e. RS. 32 - RS.20)

VAT @ 20% = Rs. 8(i.e. RS. 40 - RS.32)

VAT @ 20% = Rs. 10(i.e. RS. 50 - RS.40)

Net GST = GST on Output – Input Tax Credit

Net GST = RS. 50

RS. 20 Raw MaterialRS. 12 ManufacturerRS. 08 WholesalerRS. 10 RetailerRS. 50

Consumer

GST in India – VAT Chain

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Goods from Producer to Wholesaler Present Structure

(Rs.)

GST(Rs.)

Cost of Production 80,000 80,000ADD: Producer’s margin of profit 20,000 20,000Producer’s Price 1,00,000 1,00,000Central Excise duty @ 12% 12,000 NilVAT at 12.5% 14,000 NilCentral GST @ 12% Nil 12,000State GST @ 12% Nil 12,000Total Price 1,26,000 1,24,000

Simple Illustration on flow through Supply chain…

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Goods from Wholesaler to Retailer Present Structure

(Rs.)

GST(Rs.)

Cost of goods to Wholesaler 1,12,000 1,00,000

ADD: Profit margin at 5% 5,600 5,000

Total 1,17,600 1,05,000

VAT at 12.5%[14,700 (12.5% of 1,17,600) – 14,000]

700 Nil

Central GST @ 12% Nil 600

State GST @ 12% Nil 600

Total Price 1,18,300 1,06,200

Simple Illustration on flow through Supply chain…

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Goods from Retailer to Consumer Present Structure

(Rs.)

GST(Rs.)

Cost of goods to retailer 1,17,600 1,05,000ADD: Profit margin at 10% 11,760 10,500Total 1,29,360 1,15,500VAT at 12.5% 1470 NilCentral GST @ 12% Nil 1260State GST @ 12% Nil 1260Total Price to the final consumer 1,30,830 1,18,020Tax component in the price to the final consumer

28,170 27,720

Final price exclusive of taxes 1,02,660 90,300

Simple Illustration on flow through Supply chain…

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Taxes to be Subsumed

Central Taxes to Subsumed

Central Excise duty (CENVAT)

Additional duties of excise Excise duty levied under

Medicinal & Toiletries Preparation Act

Additional duties of customs (CVD & SAD)

Service Tax Surcharges & Cess

State Taxes to subsumed

State VAT / Sales Tax Central Sales Tax Purchase Tax Entertainment Tax (not

levied by the local bodies) Luxury Tax Entry Tax ( All forms) Taxes on lottery, betting &

gambling Surcharges & Cess

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All goods or services likely to be covered under GST except : Basic Customs Duty Alcohol for human consumption - State Excise plus

VAT Electricity - Electricity Duty? Real Estate - Stamp Duty plus Property Taxes ? Road Tax? Petroleum Products (to be brought under GST after 2

years - recommendation of GST Council- after 2 years)

Tobacco Products under GST – additional Excise by Centre?

GST - Coverage

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GST Model G

ST M

odel

CGST – Central Goods & Service Tax

SGST- States Goods & Service Tax

IGST – Integrated Goods & Service Tax [Inter State Supply]

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GST in India envisaged on destination/consumption principle - Tax revenues accrue to the destination/importing State, based on Place of Supply Rules

CGST and SGST on intra-State supplies of goods or services in India

Dual GST having two concurrent components: Central GST levied and collected by the Centre State GST levied and collected by the States Both Taxes will simultaneously apply on each transaction

GST – Dual Model

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IGST (Integrated GST) on inter-State supplies of goods or services in India - levied and collected by the Centre

Place of Supply to determine the place where the supply of goods/services will take place and to determine whether supplies are inter state or intra state

IGST applicable to Import of goods and services – imports at par with local

supply? Inter-state Stock Transfers of goods and services?

(Appropriate provisions to be made for consignments and stock transfers)

GST – Dual Model

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IGST Model Centre to levy IGST on all inter State transactions‐

IGST equal to CGST + SGST - IGST Model envisages that the Centre will levy tax at a rate approximately equal to CGST+SGST rate on inter-State supply of goods & services

Inter State Seller to pay IGST on value addition after adjusting ‐available credit of IGST, CGST, SGST on his purchases

Exporting State to transfer to Centre the credit of SGST used in payment of IGST

Importing dealer to claim credit of IGST while discharging his output tax liability in his own State

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IGST Model Centre to transfer to the importing State the credit of IGST used in

payment of SGST

IGST model permits cross-utilization of credit of IGST, CGST & SGST for paying IGST unlike intra-State supply where the CGST/SGST credit can be utilized only for paying CGST/SGST respectively

IGST credit can be utilized for payment of IGST, CGST and SGST in sequence by Importing dealer for supplies made by him

It would basically meet the objective of providing seamless credit chain to taxpayer located across States

IGST model obviates the need for refunds to exporting dealers as well as the need for every State to settle account with every other State- Central Government will act as a clearing house and transfer the funds across the States

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Manufacturer (Rajasthan)

Buyer (Rajasthan) Buyer (Delhi)

Sale price 100

Add: CGST (12 %) 12

Add: SGST (12 %) 12

Total 124

Sale price 124

Add: IGST (24 %) 29.76

Total 153.76

IGST payable (29.76-12-12) 5.76

IGST payable by utilizing IGST, CGST, SGST

CGST + SGST

IGST

Simple Illustration of IGST Model

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Credit Mechanism ITC of SGST only against SGST and ITC of CGST only

against CGST – no cross utilization between SGST and CGST

ITC of CGST – CGST and IGST

ITC of SGST – SGST and IGST

ITC of IGST against IGST, CGST and SGST – in the order

1% Additional GST – not cenvatable

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GST – Input Tax CreditOutput Tax Input Credit ITC Allowed

IGST SGST IGST CGST IGST IGST SGST SGST CGST CGST CGST SGST × CGST IGST SGST CGST × SGST IGST

Courtesy - ICAI 22

IGST – Simple Illustration

Mr. X Mr. YSupply Goods

(Gujarat) (Rajasthan)Mr. Z

(Rajasthan)

Supply Goods

ChargedIGST 24%

Input Credit with Mr. X

CGST 11 %SGST 12 %

Paid 1% IGST to Central Govt. by Mr. X:IGST Payable: 24%Less: Input CreditCGST 11% SGST 12%Net IGST Paid 1%

Input Credit with Mr. Y

IGST 24%

ChargedCSGT 11%SGST 14%

Paid 1% SGST by Mr. Y :CGST Payable: 11%SGST Payable: 14%Less: Input CreditIGST 24%Net SGST Paid 1%

Final Consumer

Centre will transfer 13% IGST to Rajasthan State

Courtesy - ICAI 23

IGST – Simple Illustration

Important points noted from above example: Gujarat Government in this transaction will not get any tax since it

is inter state supply from Gujarat to Rajasthan

Central Government will get 13% IGST on inter-state supply of goods to Rajasthan (12% from Gujarat Government and 1% paid as Cash by Mr. X)

Rajasthan Government will get 14% SGST for intra-state supply of Goods (13% from central Government and 1%paid as cash by Mr. Y)

Important to note is that Mr. Y (based in Rajasthan) has been allowed full credit of IGST paid by Mr. X (based in Gujarat) of 24%

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RNR Rate that will assure current level of

revenue generation to Centre & States

27% ?

Additional 1% as per Constitutional Amendment Bill – for net Producers vs net Consumers

Rate Structure

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Standard Rate – CGSTSGST – Floor Rate with Bands IGST

Merit Rate – Essential / Social Impact

Special Rate - Precious Metals

Nil Rate

Threshold Exemption – status of Other Exemptions currently available?

Compounded Rates – Small Taxpayers – upto specified limits

Export of goods and services - Zero rated

Rate Structure

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International Rates of GSTCountry Rate of GST %

Japan 5 %

Canada 7 %

Australia 10 %

New Zealand 12.5 %

South Africa 14 %

China 17 %

UK 17.5 %

Italy 20 %

Denmark 25 %

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Impact

Procurement – Warehousing – Logistic and Distribution

Working Capital

Compliances

IT Platform

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GST in India Beginning of another

Journey ?

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The constitution (122nd Amendment) Bill, 2014 to be passed by 2/3

rd voting members of Rajya Sabha

The Bill to be ratified by minimum of 50% of the State Legislatures

The States to amend their respective constitutions

Formation of GST Council – Decision Making Body – Autonomy of States?

GST Legislation – Centre & States

1st April, 2016 - a statement of intent or a prayer? Sleepless nights to meet the deadlines – only for FM?

GST – The Journey from here…

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Presented By: CA Anirudh Sonpal