DETAILS Project

Contents GST-Global Scenario Why is GST considered as the preferred tax structure ? GST- Current State of Play Present Structure Features of Proposed GST Model Rate of GST Issues & Challenges

SOURCE An overview on Goods and service tax information and relative data resources are: Newspaper articles Subject with regard to books. Business magazines Internet

More than 140 countries have already introduced GST/National VAT Most countries have a single GST rate

Typically it is a single rate system but two/three rate systems are also prevalent depending upon the requirement of the implementing nation Standard GST rate in most countries ranges between 15-20% All sectors are taxed with very few exceptions/ exemptions Full tax credits on inputs – 100% set off US does not have a national level VAT

Why is GST considered as the preferred tax structure? Uniform single tax across the supply chain Reduced transaction cost in the hands of the tax payers Increased tax collections due to wider tax base and better compliance Improvement in international cost competitiveness of indigenous goods and services Enhancement in efficiency in manufacture and distribution due to economies of scale

GST – Current State of Play Empowered Committee (EC) has submitted its report to the FM on the recommended model EC has suggested a dual GST FM has requested the Finance Commission, headed by Dr. Kelkar, to study the report and make recommendations. Finance Commission has sought the views of various associations and chambers The Commission envisages that its recommendations will be submitted to the FM by end 2008, in time for all subsequent work to commence and conclude by first quarter 2010 GST is on course for 1/4/2010 !

Credit set off possible Present Structure Federal Tax *(I) CENVAT (Excise) + Service Tax Excise and Service tax have been integrated Can be set off against each other State Tax *(II) VAT Input VAT can be set off against payment of output VAT/CST (III) CST No set off: Always a cost *I & II are parallel levies and cannot be set off against each other Credit set off possible Set off not possible

Dual GST recommended by Joint Working Group of the EC EC has accepted the recommendations and submitted its report to the Government Present available details form the basis for subsequent slides Basic Structure Dual GST comprising Central GST and State GST Central GST and State GST, in themselves, to comprise both the goods tax and the services tax Central GST and State GST to operate throughout the supply / value chain

Features of proposed GST Model Classification HSN to form the basis of classification of goods under Central and State GST classification of services based on global best practices and Indian realities Rates uniform rates for services multiple rates for goods Imports to be charged to both Central and State GST Excise Free Zones could continue for their life spans

Features of proposed GST Model Input tax Credits ( ITC) full credits under the Central and the State GST that will operate in parallel cross utilization of credits between Central GST and State GST not permitted refund of unutilized accumulated ITC Inter-State transactions goods to be taxed in the destination/importing State services to be taxed in the State of consumption zero rating in the originating State

Features of proposed GST Model Taxes proposed to be subsumed by GST - Central excise - Additional duties of customs - Service tax - VAT - Central Sales tax - Entertainment tax - Luxury tax - Octroi - Lottery taxes - Electricity duty - State surcharges relating to supply of goods and services - Purchase tax

Features of proposed GST Model Taxation of crude & petroleum products to be brought in GST with ITC excise duties ( without ITC) to be levied over and above GST by both Centre & State Or only crude, motor spirit & high speed diesel be out of the purview of the GST → remaining products as per above Finance Commission will make recommendations in regard to petroleum products

Features of proposed GST Model Treatment of services Any economic activity which is not supply of goods is supply of services All services to be taxed with few exceptions Central GST on services relatively easy to collect State GST on services will be far more complex – particularly on cross border services

Features of proposed GST model Cross border Services Taxed at the place of consumption of services Difficult to determine the actual place of effective use/enjoyment of services Rules for place of supply of services to be framed Currently no uniform practice exists Administrative convenience + convenience of the trade & industry to be factored to determine the place of collection of service tax

Features of proposed GST Model Thresholds uniform thresholds under Central & State GST Exemptions common lists for Centre and States with little flexibility for States to deviate exemption schemes proposed to be converted to post-tax cash refund schemes

GST Rate in Select Countries EU UK – 17.5% Germany – 19% France – 19.6% Belgium – 21% Australia – 10% New Zealand – 12.5% China – 17%

GST Rate in India What would be the GST rate in India? Clearly a huge debate and the rates which are typically being discussed are as follows: 20% 14% 12% Any of the above, would still be less than the present cumulative rate of indirect taxes The rate to be adopted would depend on the extent of coverage of GST and ability to prune exemptions

Issues & Challenges

Issues & Challenges Specific Issues & Challenges - Law Rates integration of a large number of Central & State Taxes and obtaining of consensus amongst States to abolish multiple local taxes multiplicity of taxes and tax rates Thresholds rationalization under Central & State GST Taxation of Petroleum /Alcohol/Tobacco products GST with ITC excise duties ( without GST)

Issues & Challenges Specific Issues & Challenges - Law Taxation of Inter-State Services huge challenges due to its complexity Operating a seamless input credit system pure VAT/ no cascading Integrating the origin based tax with the destination based GST Uniformity across States Proper transition from existing tax structures

Issues & Challenges Specific Issues & Challenges – Govt related Standardization of systems and procedures Uniform dispute settlement machinery Training Re-organization of administrative machinery for GST implementation is the key Building information technology backbone – the single most important initiative for GST implementation Specific Issues & Challenges – Govt related Protecting and balancing the present and future revenues of the Centre and the States commission on Centre-State Relations (CCSR) views from Trade & Industry

Issues & Challenges Impact on backward States safeguarding the interests of less developed States with lower revenue potential

Nishant Jain