Managing Change and Transition

Constitutional Amendment and GST 1/12/2019

Why Constitutional Amendment ? Clear demarcation in the Constitution between fiscal powers of the Centre and the States Constitutional amendment to empower the Centre and States to concurrently levy and collect GST (Dual GST) First concrete proposal the budget of 2006-07 and proposed to be levied from 1st April 2010 Constitutional amendment bill passed by Rajya Sabha on 03/08/2016 and Lok Sabha on 08/08/2016 Notified as Constitution (101st Amendment) Act 2016 on 08/09/2016 States to be compensated for any revenue loss for a period of five years Notified as Constitution (101st 7

Alcohol for human consumption Entertainment tax levied by local bodies Features of Constitution Amendment Act Alcohol for human consumption Power to tax remains with the State Five petroleum products – crude oil , diesel, petrol, natural gas and ATF GST Council to decide the date from which GST will be applicable Part of GST but power to levy additional excise duty with Central Government Tobacco Entertainment tax levied by local bodies Power to tax remains with the State 6

Indirect Tax Structure after GST Central Taxes State Taxes Central Excise duty Additional duties of excise Excise duty levied under Medicinal & Toilet Preparation Act Additional duties of customs (CVD & SAD) Service Tax Surcharges & Cesses State VAT / Sales Tax Central Sales Tax Purchase Tax Entertainment Tax (other than that levied by local bodies) Luxury Tax Entry Tax (All forms) Taxes on lottery, betting & gambling Surcharges & Cesses GST 4

GST Council - Constitution Chairperson – Union FM Vice Chairperson - to be chosen amongst the Ministers of State Government Members - MOS (Finance) and all Ministers of Finance / Taxation of each State Quorum is 50% of total members States - 2/3 weightage and Centre - 1/3 weightage Decision by 75% majority Council to make recommendations on everything related to GST including laws, rules and rates etc. 24 meetings held so far 7

Key Concepts in GST Law 1/12/2019

Key features of the GST Law (1/3) L Destination-based Consumption Taxation Tax on supply of goods or services rather than manufacture / production of goods, provision of services or sale of goods On Intra-State supplies of goods or services - CGST & SGST shall be levied by the Central and State Government respectively On Inter -State supplies of goods or services - IGST shall be levied by the Central Government Availability of Input Tax Credit at every stage Invoice level matching to claim input tax credit

GST SCENARIO (INTRA STATE TRADE OF GOODS) S A B C E CGST = 10% SGST = 10% VALUE ADDITION = 10% ITC = INPUT TAX CREDIT STATE TAX TOTAL = RS.12.10 (10+1+1.10) SGST = 12.10 ITC = (11) Cash = 1.10 SGST =10 S SGST = 11 ITC = (10) Cash= 1 DEALER CONSUMER INPUT MANUFACTURER CAR MANUFACTURER A B C CGST = 11 ITC = (10) Cash = 1 CENTRAL TAX TOTAL = RS.12.10 (10+1+1.10) CGST = 12.10 ITC = (11) Cash = 1.10 CGST = 10 E TAX INVOICE C COST = 110 VALUE = 121 CGST = 12.10 SGST = 12.10 INVOICE VALUE = 145.20 TAX INVOICE B COST = 100 VALUE = 110 CGST = 11 SGST = 11 INVOICE VALUE = 132 TAX INVOICE A VALUE = 100 CGST = 10 SGST = 10 INVOICE VALUE = 120

Union territory without legislature Understanding CGST, SGST, UTGST & IGST CGST + SGST IGST State 1 Foreign Territory IGST CGST + SGST IGST IGST CGST + UTGST State 2 Union territory without legislature 5

Key Features of the GST Law (2/3) All transactions and processes only through electronic mode – Non-intrusive administration PAN Based Registration Registration only if turnover more than Rs. 20 lac Deemed Registration in three working days Provision of Composition Scheme: Quarterly return Invoice Level matching to claim input tax credit 11

Key Features of the GST Law (3/3) Tax can be deposited by internet banking, NEFT/ RTGS, Debit/ credit card and over the counter Refund to be granted within 60 days Provisional release of 90% refund to exporters within 7 days Refund to be directly credited to bank accounts Anti-Profiteering provision 12

GST Network (GSTN) A section 25 non profit company with Strategic Control of the Government To function as a Common Pass-through portal for taxpayers- submit registration application file returns make tax payments To develop back end modules for 27 States/UTs (MODEL –II) Infosys appointed as Managed Service Provider (MSP) 73 GST Suvidha Providers (GSPs) appointed (34 in first round) 15

Main GST Council Decisions prior to 1st July 2017 1/12/2019

GST Council – Main Decisions prior to 1st July 2017 GST Council emerging as unique example of cooperative federalism Approval of all laws, rules and rates in time bound manner Four tax rates namely 5%, 12%, 18% and 28% plus exempt Cess over peak rate of 28% on specified luxury and demerit goods Fitment of goods/ services in different tax slabs Threshold limit for exemption to be Rs. 20 lac (Rs. 10 lac for special category States) Compounding threshold of Rs. 75 lakhs with - Categories Tax Rate Traders 1% Manufacturers 2% Restaurants 5% 8

GST Council – Main Decisions prior to 1st July 2017 To ensure single interface – all administrative control over 90% of taxpayers having turnover below Rs. 1.5 cr would vest with State tax administration 10% of taxpayers having turnover below Rs. 1.5 cr. would vest with Central tax administration taxpayers having turnover above Rs. 1.5 cr. would be divided equally between Central and State tax administration 9

Compensation Mechanism for States Revenue of all taxes subsumed in GST by the State for 2015-16 as the base Assumption of 14% Annual Growth Rate Compensation to be provided through Cess Cess only on few specified luxury and demerit goods 10

Managing Change and transition 1/12/2019

Three tier structure for GST implemetation Revenue Secretary GIC Implementation Committee Seven Standing Committees Law Committee Fitment Committee Single Interface Committee Publicity and Outreach Committee Capacity Building and Facilitation Committee Fund Settlement Committee Guidance Notes Committee 18 Sectoral Groups 10

Some important recent decisions of GSTC GST Council responsive and agile to feedback of trade, industry and stakeholders Introduction of Summary Return Form GSTR 3B Extension of dates for filing returns from time to time Rationalization of tax rate for many commodities Constitution of two GoMs: IT issues Composition Scheme and Restaurant Tax Structure 10

Some important recent decisions of GSTC Committee of officers under chairmanship of Revenue Secretary on export Committee on simplification of returns under chairmanship of Chairman GSTN/ UIDAI Constitution Law Review Committee and an advisory group to Law Review Committee 10

Responding to the needs of Exporters Problem of Working Capital Blockage Manual Refund system introduced to GST/IGST already paid Imports permitted like before (Advance Authorization, EPCG and 100% EoU Schemes) and without payment of IGST/ Cess Domestic supplies to be treated as deemed exports to holders of AA/ EPCG / EoU and suppliers to get refund E-Wallet Scheme: Permanent long term solution GST on duty credit scrips reduced from 5% to nil 10

Responding to the needs of the MSME sector Threshold increased from Rs 75 Lacs to 1 Crore under composition scheme and also allowed to deal with exempt services Inter state service providers with turnover of less than Rs 20 lacs also exempted from registration Quarterly return filing for SMEs with turnover less than Rs 1.5 Crores Reverse charge Mechanism under Section 9(4) of CGST Act suspended till 31.03.2018 Taxpayers not to pay GST at the time on receipt of advance 10

Decisions on recommendations of GoM on Composition Levy uniform rate of tax of 1% for manufacturers and traders Turnover of only taxable goods counted towards tax in case of traders Supply of services by composition taxpayers permitted up to Rs 5 Lacs Amendment in law to enhance eligibility under composition scheme to Rs 2 Crore and then enhance eligibility for composition to Rs 1.5 Crore Amendment in Law to allow composition scheme to job work services 10

Long term benefits of GST One Tax in place of many taxes: Simplified tax regime Common National Market: Same tax in all states Reduction in cascading of taxes: Reduced prices Non-Intrusive Electronic Tax System Self-Regulating Tax System Boost to exports, make in India and FDI Poorer states to gain as GST is destination based tax 10

Way Forward Handling initial IT glitches and timely development and implementation of remaining modules GST Suvidha providers to be activated User friendly offline utilities More GST outreach and awareness Handholding of small taxpayers Introducing E-Wallet Scheme for exporters Further rationalization of rates Introducing nation wide E-Way Bill System Relook at the laws with focus on ease of doing business and reducing compliance burden 23

Thank You 23