Preparing for Goods & Service Tax Presentation by : CA. Pulak Saha www.pwc.in Preparing for Goods & Service Tax Presentation by : CA. Pulak Saha 9th January, 2015 at ACAE

1 2 Agenda Overview of Goods and Service Tax Current State of Play 9th January, 2015

Overview of Goods and Service Tax At present, various Indirect taxes are levied at both Central and State level Under the current system, not all kinds of Indirect taxes are creditable against each other, leading to tax cascading A system of unified Goods and Service Tax (GST), has been proposed to bring a fundamental shift in the way business transactions are taxed in India GST is proposed as a comprehensive value added tax levied on the supply of all goods and services (except for a negative list) It is proposed that various State and Central level Indirect taxes such as Excise duty, State level taxes on sale of goods, Service tax would be subsumed under GST GST is expected to have a dual structure with Centre and State levying taxes on the same supply of goods/ services Less tax cascading Increased investment Improved competitive position of Indian producers Improved cash flow position Broader base, lower taxes Simpler and rational tax structure Improved administration (simplicity and lower cost of administration) Speak about new person and what a change it has made; and PwC’s length and breadth of experience on APAs Advantages of GST 9th January, 2015

Overview of GST Taxes to be subsumed Central levies State levies Additional Duty of Customs Special Additional Duty of Customs Central Excise Service Tax Central Sales Tax State levies State-VAT Other state levies such as Luxury tax, Entertainment tax, etc Taxes outside GST Basic Customs duty Stamp duty Taxes and duties on electricity Key points of differences Inclusion of Entry tax/ Local Body tax and Purchase tax Inclusion of petroleum products 9th January, 2015

Current state of play 9th January, 2015

Current state of play Constitution Amendment Bill Bill to be ratified by Legislatures in half of the States Bill to be presented to President for assent Constitutional Amendment Bill has been approved by the Union Cabinet on 17.12.2014 and introduced in the Lok Sabha on 19.12.2014 Updates on key EC meetings EC meetings on 28 January 2013 and 14 February 2013 Alcohol to remain out of GST. However, indications to include motor spirit/ petroleum in GST ambit Provisions on Dispute Settlement Authority removed Centre and States to have 1/3 and 2/3 weightage in GST Council. Decisions by 75% majority as against consensus Sub-committees formed by EC Committee on Revenue Neutral Rate (RNR) and Place of Supply Rules Committee on avoidance of dual control of tax officials Committee on IGST and taxation of imports Committee to draft model GST law EC meeting held on 10 and 11 May 2013 – Discussion paper of State Finance Ministers circulated C-VAT model for inter-state transactions - under this model input tax credit of only CGST and IGST would be allowed against IGST. Excess SGST can be claimed as refund Threshold - Common threshold for SGST and CGST is proposed to be increased from INR 1 million to INR 2.5 million for both goods and services (with nil threshold for inter-state dealers) Dual control – Following suggested to reduce problem of dual control: One return to be filed by dealer Dealer having annual turnover up to INR 15 million would be under control of State and Centre will only check arithmetic accuracy Dealers having annual turnover of more than INR 15 million or dealers engaged in inter-state supply would be under control of both State and Centre EC meeting on 11 November 2014 – Centre's proposal to raise the threshold of annual turnover for the proposed GST from the earlier proposal of INR 10 Lakh to INR 25 Lakh has been rejected by EC. EC also indicated that the GST Council may take the final decision regarding fixing of the threshold limit; Proposal of Central GST at 12.77 per cent and State GST at 13.91 per cent based on average neutral rates, made by a sub-committee of the EC, has been referred to National Institute of Public Finance and Policy (NIPFP). The proposal would be reconsidered by EC, post the recommendation of NIPFP; The EC has given in-principle clearance to place of supply rules. Place of supply rules are fundamental in determining the state where a service/ goods would be considered as provided and state GST or integrated GST is required to be paid; There have been suggestions that the Centre has included Petroleum within GST framework in the draft Constitution Amendment Bill as Zero rated product. The EC denied receiving any such Draft Bill from the Centre and reiterated its opposition to inclusion of Petroleum, Alcohol and Tobacco within the GST framework; It was highlighted that if the Constitutional Amendment Bill is passed in this upcoming Winter Parliament Session, the target of introducing GST by 1 April 2016 could be achievable. Once passed by Lok Sabha, to be passed by Rajya Sabha. Both houses to pass by majority and with 2/3rd members of the each house present and voting 9th January, 2015

Current state of play GST Bill State legislature to pass State specific GST legislation based on GST bill passed by Parliament GST Bill Implementation of GST Finalization of draft GST Bill GST Council (As per 2011 Bill) To consist of: Union Finance Minister Union Minister of State in charge of revenue Minister in charge of Finance or Taxation Make recommendations on following: Taxes, cesses and surcharges which may be subsumed; Goods and services that may be subjected to or exempted; Threshold limit; Rates of goods and services tax; and Any other matter To also have dispute resolution powers (not included in the Bill but agreed subsequently consequent to consensus on scrapping of Dispute resolution body) CGST Bill to be passed by both houses of the Parliament by simple majority –To be presented to President for assent GST council to be created 9th January, 2015

Salient Features of GST Constitutional Amendment Bill Insertion of new Article 246A conferring simultaneous power to the Union and the State Legislature to legislate on GST. Insertion of new Article 279A for the creation of a Goods & Services Tax Council, which will be a joint forum of the Centre and the States. This Council would function under the Chairmanship of the Union Finance Minister. To do away with the concept of ‘declared goods of special importance’ under the Constitution. Central Taxes like Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty (CVD) and Special Additional Duty of Customs (SAD), etc. will be subsumed in GST. 9th January 2015

Salient Features of GST Constitutional Amendment Bill At the State level, Taxes like VAT/ Sales Tax, Central Sales Tax, Entertainment Tax, Octroi and Entry Tax, Purchase Tax and Luxury Tax, etc. would be subsumed in GST. The Centre will compensate States for loss of revenue arising on account of implementation of the GST for a period up to five years (The compensation will be on a tapering basis, i.e. 100% for the first three years, 75% in the fourth year and 50% in the fifth year). Both Centre and States will simultaneously levy GST across the value chain. The Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State. 9th January 2015

Salient Features of GST Constitutional Amendment Bill All Goods and services, except alcoholic liquor for human consumption, will be brought under the purview of GST. However, it has also been provide that petroleum and petroleum products shall not be subject to the levy of GST till notified at a future date on the recommendation of the GST Council. The present taxes levied by the States and the Centre on petroleum and petroleum products, i.e., Sales Tax/ VAT, CST and Excise duty only, will continue to be levied in the interim period. GST is a destination-based tax. All SGST on the final product will ordinarily accrue to the consuming State. 9th January 2015

Salient Features of GST Constitutional Amendment Bill The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supply of Goods and Services. There will be seamless flow of input tax credit from one State to another. Proceeds of IGST will be apportioned among the States. GST rates will be uniform across the Country. However, to give some fiscal autonomy to the Centre and States, there will be a provision of a narrow tax band over and above the floor rates of CGST and SGST. The term “Services” is proposed to be exhaustively defined as “anything other than goods”.   9th January 2015

Salient Features of GST Constitutional Amendment Bill It is proposed to levy a non-vatable Additional Tax of not more than 1% on supply of goods in the course of inter-State trade or commerce for a period not exceeding 2 years, or further such period as recommended by the GST Council. This Additional Tax on supply of goods shall be assigned to the States from where such supplies originate. 9th January 2015

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