goods and services tax (gst) 1. content of presentation background of gst salient features of gst...
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Goods and Services Tax
(GST)
1
Content of presentation
• Background of GST• Salient features of GST• GST status update• Inter-State GST• Place of Supply• Revenue Neutral Rate (RNR)• Issues in GST
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Background of GST
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Introduction of VAT at State Level
– For introduction of harmonious VAT at State level a meeting of Chief Ministers was convened by then Finance Minister Dr. Manmohan Singh in 1995.
– In Nov 1999, two important decisions were made
• To end unhealthy tax rate war (by implementing uniform floor rates based on consensus)
• To form Standing Committee of State finance Ministers called Empowered Committee of State Finance Ministers to build consensus and take decisions
– VAT in the State was introduced in April 2005.– By Jan 2008 VAT was implemented in all States
and UTs.
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1. Union Government constituted a Task Force on the
Implementation of the Fiscal Responsibility and
Budget Management Act, 2003.
2. Task Force pointed out the required Fiscal
corrections could be made on the Expenditure side
as also the Revenue side.
3. Task Force proposed a strategy for Tax Reforms
and recommended, inter-alia, introduction of an
integrated Goods and Services Tax.
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Kelkar Committee
Report
The Union Finance Minister in his
Budget Speech in February 2006
stated by April 2010, a unified
Goods and Services Tax would be
introduced in India, replacing the
Central and State levies on goods
and services. 6
Announcement
The Empowered Committee of State Finance
Ministers has prepared and submitted to the
Union Finance Ministry its recommendations
regarding the proposed unified Goods and
Services Tax.
The first Discussion Paper on Goods and
Services Tax in India was published by the
Empowered Committee of State Finance
Ministers on November 10, 2009.7
Developments
Salient Features of GST Model
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Objectives of GST
• Development of Harmonised National
Market
• Harmonisation in Tax Policy and
Administration
• Harmonisation in legal Provisions,
procedures and tax rates
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1010
What is GST ?
• GST has same nature as VAT but will include all major indirect taxes of Centre & State
• Tax on continuous chain of transaction from producer and service provider upto retailer, with set-off.
• Removal of cascading of tax like Central Excise component presently taxed under State VAT.
• Integration of goods and services for vatability.
• Change in inter-State transactions from origin based to destination based.
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Benefits of GST
• Removal of cascading burden and transparency in tax
• Simplified tax structure by removing multiplicity of tax
• Uniformity of tax procedure, rate across India
• Possibility of better compliance due to linkage of all taxes.
• Reduced cost of compliance for tax payer.
12
Changes under GST
• Additional power to levy tax on services for the State.
• Additional power to levy VAT on goods for the Centre.
• Set-off relief of VAT on goods to service provider and vice versa.
• Subsuming of several taxes levied by State and Centre,
• Introduction of inter-State GST instead of CST
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Central Taxes to be subsumed under GST
• Central Excise Duty• Additional Excise Duties • Excise Duty levied under the Medicinal and
Toiletries Preparation Act • Service Tax • Additional Customs Duty, commonly
known as Countervailing Duty (CVD) • Special Additional Duty of Customs - 4%
(SAD) • Surcharges, and • Cesses.
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State Taxes to be subsumed under GST
• VAT / Sales tax • Entertainment tax (unless it is levied by the
local bodies). • Luxury tax • Taxes on lottery, betting and gambling. • SCPT – Sugar Cane Purchase Tax• Entry tax not in lieu of Octroi.• State cesses and Surcharges relating to supply
of goods and services• Octroi [proposed by Government of India,
objected by States]
151515
Taxes NOT to be subsumed under GST
• Central Taxes • Customs Duty• Excise on tobacco products and petroleum
products • State Taxes
• Excise duty on liquor • Sales Tax on petroleum products, liquor• Stamp duty• Taxes and duties on Electricity
1616
GST Tax Structure
• GST with two components Centre GST (CGST) and
State GST (SGST).
• Two taxes levied on every transactions from
manufacture to retailer.
• Inter-State sales tax on ‘destination’ unlike ‘Origin’
based under CST.
• Implementation through three statutes.
• Basic features of law to be uniform.
1717
GST Tax Structure
• Zero rating of Exports
• GST on imports equal to CGST and SGST
• Inter-State Tax will flow to the consuming State which will give ITC
• All industrial exemption schemes to be converted into cash subsidy schemes
181818
GST Rate Structure
• Two-rate structure• a lower rate for necessary items, goods
of basic importance and specified services.
• a standard rate for goods and services in general.
• A special rate for precious metals. • A list of exempted items – same as
existing VAT Act as well as negative list for services.
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GST Business Process
• Common system for registration, return,
payment
• Registration number PAN based with state
code and check digits
• Maximum services for dealers to be
electronic and on common portal GSTN.
• All dealers to file electronic returns.
• Payments through e-payment or OTC
payment for small dealers
2020
Prime Requirements for roll out of GST
• Amendment in Constitution,
• Robust IT infrastructure,
• Statutes for CGST, SGST & IGST,
• Business process re-engineering
• Migration of existing tax payers for allotment of new Registration number.
• Decision regarding rate of tax.
2121
GST Status Update
A. Constitutional Amendment
B. Machinery for GST
C. Automation
GST Status UpdateA. Constitutional Amendment:
• GST envisages additional power to levy tax on
trade by Centre and Service by State, which
presently not available in the Constitution.
• Accordingly, Constitutional Amendment (One
Hundred and Fifteenth) introduced in Lok Sabha
in 2011. Vetted by Standing Committee and gave
recommendation in 2013.
• Based on recommendations of Standing
Committee, Amendments to Bill done. EC gave
remarks on Bill, under consideration with
Government of India.22
GST Status Update Cntd..
B. Machinery for GST:
• Apart from Constitutional Amendments, EC has
crystallized areas which needs detailed deliberations
for smooth introduction of GST.
• EC formulated three Sub-Committees to work on (i)
Dual Control (administrative control over dealers),
Exemption and Threshold, (ii) Inter-State GST and GST
on Imports (iii) Place of Supply and RNR.
• Reports prepared and accepted by EC
• Work of Committee on GST Laws is under progress.23
GST Status Update Cntd..
C. Automation:
• In order to cater automation needs, non
Government Company formed.
• States and Centre to have 49% equity and
private participation at 51% equity.
• Business processes for registrations, return
and payment are near to finalization.
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Details of Constitutional Amendments
New Articles
• Article 246A provides for levy of GST by State
& Centre
• Article 269A provides tax on inter-State by
Centre.
• Article 279A creation of GST Council for
implementation of GST.
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GST Council Structure
• Union Finance Minister Chairperson• Union Minister of State Member Revenue• State Finance Ministers Members• One of the State Finance Vice-
chairman Ministers
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GST Council
FunctionsRecommendations on-
• Taxes to be subsumed in GST• Exempted goods & services• Threshold• Floor rate of tax with band• Special rate for specific period
Dispute settlement between States, between Centre and States
Decision• Majority of not less than 3/4th of weighted votes• Centre vote to have weightage of 1/3rd
Maharashtra recommendations• Centre vote to have weightage of 1/5th
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Constitutional Amendments
Other Amendments
• Article 286 to do away with concept of ‘declared
goods’
• Article 366 to include definitions of ‘goods &
services tax’ and ‘services’
• Clause (29A) of article 366, defining deemed
sales like works contract, hire-purchase sale,
lease etc. to be omitted
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Constitutional Amendments
Amendment in Union List
• Entry 84 to be modified to retain power to levy
excise duty on petroleum products & tobacco
products
• Entry 92 about tax on sale of newspaper and
advertisement published therein to be deleted
• Entry 92C about tax on services to be deleted
29
Constitutional Amendments
Amendment in State List
• Entry 52 omitted – Entry Tax (objected by State)
• Entry 54 provided for tax on Petroleum goods & liquor
(State demanded for tobacco & tobacco products
also)
• Entry 55 about tax on advertisement to be deleted
• Entry 62 entertainment tax can be levied by Local
Bodies only. Tax on Luxury, entertainment, Betting &
gambling subsumed in GST
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Machinery for GST
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EC Sub-Committees
• EC constituted committees for providing machinery for
GST
Committees to deal with various issues.
1. Committee on Problems of Dual Control, Threshold &
Exemption
2. Committee on IGST and GST on Import
3. Committee on Revenue Neutral Rate & Place of
Supply
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Threshold & Dual Authority
• Threshold at Rs. 10 lakhs & for NE States at Rs.
5 lakhs
• Tax payer to get PAN based registration number
• Tax payer upto 1.5 cr with States for tax
administration
• Dual authority for dealers above turnover of Rs.
1.5 cr.
• IGST dealers may face dual authority. (issue
debated)33
Exemptions
• VAT list of exemptions on 96 commodities to
continue
• Centre to align its exemption list to VAT list
• List of goods taxed at merit rate (lower rate) to
be decided
• HSN code to be introduced at the time of GST
roll-out• Issue of Rate of food grains in GST
(as majority of the States do not levy tax)
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35
Composition Scheme
• Composition scheme for small dealers with
annual TO of Rs. 75L. (Proposed 50 L by EC)
• Reasonable compounding rate of 0.5% to be
prescribed. (proposed 1% by EC)
• Scheme to be optional
• Relieves small dealers of maintaining
accounting details.
• Not available for importers and inter-State
dealers.
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Issues: Composition Scheme
• Compounding rate of 0.5% not revenue neutral
• Is compounding scheme available to all dealers
including Builders & developers?
Maharashtra Recommendation
− Revenue neutral compounding rate should be
1.5%. (being revenue neutral)
− Compounding scheme may not be available to
service providers, manufacturers (not accepted
by GOI)
Inter-State GST [IGST]
37
383838
IGST Method:• Innovative model for inter-State transactions
called IGST model. • Centre to levy IGST equal to CGST plus SGST on
all inter-State transactions.• Inter-State seller to pay IGST. • Credit of IGST available inter-State purchaser to
be adjusted against CGST, and SGST and vice-versa.
• IGST is destination based and will accrue to importing State.• B2B transactions -- tax will flow to the State
where purchaser claims ITC • B2C transactions -- tax will flow to the State of
Consumer if C is clearly identifiable. Otherwise tax will remain in the State of B
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IGST
Pre-requisite• Common e-Return for CGST, SGST and IGST
• No short payment
• Inter-State branch / stock / consignment transfer to
be treated as sale
• Reporting of sales and purchase invoice details to
be mandatory
• All taxpayer to file monthly return
40
IGST – Process flow of return filing
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IGST – Cut-off dates
10th day of succeeding month
− Uploading provisional sales statement.
− Mandatory for dealers above certain turnover.
17th day of succeeding month
− Uploading final sales statements
− Uploading final purchase statement
20th day of succeeding month
− e-payment
− Filing of e-return.
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IGST – Post return processesL
ocating mismatched invoice immediately after last date of filing of returns.
Reconciliation and corrections in sales & purchase statements based on mis-match within prescribed time limit (say 15 days)
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IGST – Post return processes
ITC of claimant dealer to be reversed by mis-match amount by the system after above reconciliation period.
Liability of the dealer to be increased by the extent of ‘non-paid mis-match amount’ in the next return by the system
Bar on the dealer to file return unless payment of such reversed credit along with interest has been made.
IGST - Validations
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I: Return
− Aggregate of sale statement with turnover of sales
− Aggregate of purchase statement with turnover of purchases
− e-payment with tax liability in the return.
II: Sales / Purchase Statements and their matching
− GSTIN of pairing dealers
− GSTIN of blacklisted dealers
− separate invoice for each tax rate
III. Matching of invoice
− GSTIN of pairing dealers,
− Invoice no and date
− Tax amount
− Tax rate
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Other features of IGST Model• Purchaser to claim ITC of IGST
• ITC of IGST can be adjusted against liability under
IGST, CGST, SGST.
• Purchaser has to bear the burden until settlement
of mis-match.
• Seller can not reduce his liability merely on the
ground that ITC on such sales is not claimed
• Seller can revise return in case of incorrect or
missing entry in sales statement
• Revision by seller is allowed only if the ITC is
reduced by the purchaser,.
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Other features of IGST Model Contd…
• Revision of returns to be restricted to 6
months
• Separate annexures may be provided for debit
/ credit notes
• Debit and credit notes to be tagged to original
sales and purchase invoices
• Debit and credit notes to carry aggregate
details of value and tax rates
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IGST - Transfer of credit
• GOI will transfer IGST credit utilized by the importing dealer
(to pay his SGST liability) to his State Government.
• State Government of the exporting dealer will transfer
SGST credit utilized by him (to pay his IGST tax liability) to
GOI.
• Settlement between Govt. of India and importing /
exporting State Govt. will be independent of each other
• AG in States and CGA in Govt. of India may be authorised to
carry inter-government settlement.
• Inter-government settlement through consolidated fund
within month without approval of legislature.
Place of Supply
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494949
Place of Supply Rules
Important for deciding ‘appropriate State’ to
receive tax and place where tax to be paid.
Place of Supply of Services
General rule
• Supply to a registered person or public authority
shall be the State of service recipient
• Supply to Non-registered person shall be the
State of service provider,
With exceptions to certain services as notified.
505050
Notified Services for Place of Supply
Type of service Place of Supply
Services having nexus to immovable property including general insurance
State in which such property is located.
Performance based services State where the services are actually performed
Services relating to events State where the event is actually held
Goods transportation services to registered persons
Location of service receiver
Goods transportation services to unregistered person
State in which goods are handed over for their transportation.
Passenger transportation service
State where passenger starts journey.
Services provided on board a conveyance
State of the first scheduled point of departure
515151
Notified Services for Place of Supply
Type of service Place of Supply
Telecom services
− Fixed line State where fixed line is provided
−Post – paid mobile & internet
State of address of service recipient
−Pre – paid mobile & internet
State of sale of pre-paid vouchers or where pre-payment is received
Broad cast services to registered persons in identifiable State
Each state in proportion to amount attributable to service provided
Broad cast services to registered persons in un-identifiable State
Location of registered service receiver
525252
Notified Services for Place of Supply
Type of service Place of Supply
Broadcast services to non-registered persons
Location of service provider
Advertisement services to Central Govt., State Govt. or local authority
Each state in proportion to amount attributable to service provided
Legal services involving representations
Location of forum at which the litigation is going on.
Legal services not involving representations to unregistered persons
Location of service provider
535353
Notified Services for Place of Supply
Type of service Place of Supply
Account based banking & other financial services
Location of service receiver on record of service provider
Non-account based banking & other financial services
Location of service provider
Insurance services to registered persons
Location of service receiver
Insurance services to un-registered persons
Location of service receiver on record of service provider
545454
Place of Supply of Goods
With movements of goods• State where goods are delivered to the
receiver.Without any moverment of goods• State where goods are located at the time
when deliverly takes place Goods installed• State in which installation has actually taken
placeGoods on board a conveyance• State where goods are taken on board.Place of supply of electricity or gas• State where gas or electricity is used and
consumed.
Revenue Neutral Rate (RNR)
55
565656
Revenue Neutral Rate
• RNR calculation worked assigned to NIPFP
• NIPFP reported standard rate at 13.91% for
State and 12.77% for Centre.
• Assumption of lower rate at 6%, sugar and
textiles are taxed, services taxed at standard
rate
• Issue of high tax rate on services.
575757
Issues in GST
Important Issues
• Abolition of Entry 52 in State list
• GST compensation mechanism and period.
• Revenue Neutral Rate on services
• Methodology of administration on tax
payers with dual control
• Calculation of service tax base
58