Points at Glance Overview of Indirect taxes in India Why GST ? Constitutional Framework. Major tax reforms in India. Cascading effect of taxes. GST Balance sheet.

Overview of Indirect taxes in India Excise Service Tax Customs Indirect Taxes Sales Tax Entry Tax Luxury Tax Entertainment Tax Disclaimer : These are only few of taxes which we see in our routines, Many other taxes please don’t mind due to constraint of space.

Why GST ? One Tax One Nation Removal of cascading effect of taxes Free Movement of Goods and Services Rationalize structure of indirect taxation Continuous chain of set – off till the consumer Wider Coverage of input tax , sales tax and service tax set-off

Power to Tax Constitution of India Union List State List Concurrent List Supreme body to Govern the nation Central Govt. can frame the legislation on entries covered in this list. State Govt. can frame the legislation on entries covered in this list. Central & State Govt. both can frame the legislation on entries covered in this list simultaneously.

Constitutional Amendments Article 366 (12A) “Goods and service tax” means any tax on supply of goods, or services or both except taxes on supply of alcoholic liquor for human consumption. To be extended to crude, diesel, petrol, natural gas, and ATF from a date to be notified on recommendation of the GST council. Not yet extended to union territories without legislatures. Article 246 A 246 A(1) Notwithstanding anything contained in article 246 and 254 parliament, and subject to clause (2), Legislature of every state, have power to make laws with respect to goods and services tax imposed by union or by such state. 246 A(2) Parliament has exclusive power to make laws respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter state trade or commerce.

Constitutional Amendment Process Amendment to implement GST is to follow the following steps; To be passed in the Rajya Sabha with two third majority After being subject to months of haggling and histrionics, the Goods & Services Tax (GST) finally had its historic day in the Rajya Sabha with the passage of the Bill to amend the Constitution, paving the way for what is popularly referred to as the concept of “one nation, one tax”. on 04 Aug’ 2016 To be passed in the Lok Sabha with two third majority Lok Sabha, unanimously passed the 101nd Constitutional Amendment Bill on 08 Aug’ 2016 Stage 1 Ratification by at least half of the State Legislatures Orissa become 16th state to ratify the constitutional amendment wef. 01 Sep’ 2016 Constitution (101st Amendment) (GST) Bill, 2014, Assented by President on 08 Sep’ 2016 Assent of the President Jammu and Kashmir, Karnataka, Kerala, Manipur, Tamil Nadu, Uttar Pradesh, Uttarakhand, West Bengal have not ratified till date.

GST Council to be formed within 60 Days (A. 279A) Legislative Process GST Council to be formed within 60 Days (A. 279A) In Process, GST Council has already prescribed registration, Invoice and Returns Forms & Rules Formed on 13 Sep’2016 chaired by Union finance minister, and State finance ministers and representatives from union terretories as members GST Council to recommend law & procedures for GST Taxes to be subsumed, exemption, model Legislature, principles of levy, apportionment of IGST, Place of supply, Rates- floor rate and bands, threshold Stage 2 Centre and State Governments to pass respective Legislations for the implementation of GST CGST/IGST- Winter session / Money Bill Budget session. 31 Legislatures (29 + 2) GST Council is working meticulously to roll out GST w.e.f April 1, 2017

Additional Customs Duty Excise Service Tax Additional Customs Duty (CVD) Special Additional Duty (SAD) Sales Tax / VAT Octroi / Entry Tax/ Luxury Tax/ Entr. Tax/ Taxes on lottery, etc Purchase Tax Taxable event is Manufacture of goods Median Rate 12.5% Taxable event is sale, Rates 5%, 12.5%, 20% Taxable event is provison of Service Median Rate 14% + Cesses Equivalent to Excise duty Median Rate 4%

Major Tax reforms in India Goods & Services Tax (GST) Value Added Tax (VAT) Cenvat Credit Rules 2004 Input Credit allowed of Excise and Service tax against Excise and service tax Liability on output/Services. VAT Credit allowed of purchase goods against VAT Liability on sale. “One Tax one nation” Credit allowed of almost all taxes against output liability. Central Levy not creditable against State Levy’s Central Levy not creditable against State Levy’s Central Levy creditable against State Levy’s

Position after VAT : GST VAT v/s GST VAT was introduced in the Indian taxation system from April 1, 2005 in an effort to address the problems associated with earlier sales tax. India is one of the 123 countries across the world that are following the VAT mode, which is an improvement in several aspects. Position before VAT VAT Position after VAT : GST There was a cascading effect of tax. I.e., Tax on Tax VAT is the tax on value addition only thereby removing the cascading effect However, the cascading effect is not removed completely. GST is an improvement over VAT Essence of GST is to correct certain shortcoming of VAT like bringing central levied taxes under a cogent tax net, which is not possible in VAT system. Hence, GST has been modelled as an extension of the current VAT that would make the tax system more smoother more functioning more comprehensive.

Cascading effect : Supply of Goods CGST / IGST + SGST Service Tax With Implementation of GST this cascading effect of tax on the same goods will be eliminated as CGST/IGST/SGST will creditable against the tax paid on inputs. Furthermore, Intersectoral credit will also allowed between inputs and input services and Central levy’s V/s State levy’s This would result in lower cost and seamless flow of transactions. Tax on Service CGST / IGST + SGST Factory Service Tax CGST / IGST + SGST Excise Duty + VAT / CST Tax on Service Tax on Goods CGST / IGST + SGST VAT / CST Tax on Goods Retail CGST / IGST + SGST Taxes In Red becoming Cost Taxes in Green allowed as Credit VAT / CST Consumer Tax on Goods

Cascading effect : Supply of Goods Present Stage of Supply chain Purchase value of Input Value addition Value of Output at removal Central levy Excise @10 % State Levy VAT/CST @ 10 % Total Tax on Output at removal Net Tax Payable Manufacturer 100 30 130 13 14 27 27 – 8 – 9 = 10 Wholesaler 130 + 13 = 143 20 163 - 16 16 – 14 = 2 Retailer 10 173 17 17 – 16 = 1 Consumer 173 + 17 = 190 GST Stage of Supply chain Purchase value of Input Value addition Value of Output at removal Total Tax on Output at removal GST @ 15 % Input Tax Credit Net Tax Payable Manufacturer 100 30 130 19 13 19.5 – 13 = 6.5 Wholesaler 20 150 22.5 19.5 22.5 – 19.5 = 3 Retailer 10 160 24 24 – 22.5 = 1.5 Consumer 160 + 24= 184

Scenario in GST India Any other Country BCD + IGST Manufacturer/ Supplier Customer Export Import India Any other Country BCD + IGST Local Supply Customer Inter – State Supply State Border IGST (Services) IGST (Goods) Customer CGST + (Goods) SGST IGST (Services) Manufacturer / Supplier Utilisation of Input Credit International Border

Taxes not to be subsumed in GST Basic Customs Duty.  Swachh Bharat Cess. Krishi Kalyan Cess. Taxes by local bodies Clarification needed for Auto cess ? NCCD ? Infrastructure cess? GST

GST Balance Sheet           A Starling Fact : Globally when GST is passed, the ruling Government fails to gain majority in next term Removal of Cascading effect of taxes , Tax the Goods and services on value addition only.  Seamless flow of credit  Destination based tax, Tax will collected by consuming state and central.  Free Movement of goods , Speedy transportation, no intruption at state borders.  Rationlisation of Statutory Reportings / Assesments, Bulid transparency across the economy,  Temporary blockage of Cash Flow.  Multi tax on Stock lying in depot, warehouse as on cut-off date.  Temporary surge in inflation.  Recording / Reporting obligation on small business mans. (Treshhold limit 19 Lacs)  Question mark on area based exemption and Foreign trade policy.

GST- One Tax One Nation Thanks..