Presented By: CA Anirudh Sonpal BARODA BRANCH OF ICAI 16th May, 2015 GST Basic Structure Presented By: CA Anirudh Sonpal

To Recapitulate – The Journey so far…. 2004 The Kelkar Committee Report 2006 & 2007 FM - GST to be Introduced w.e.f 1st April, 2010 November, 2009 Empowered Committee – First Discussion Paper December, 2009 Report of the Task Force -13th Finance Commission 2010 FM – Roll out of GST by April, 2011 March, 2011 The Constitution (115th Amendment) Bill, 2011 July, 2014 FM – The debate whether to introduce GST must come to an end December, 2014 The Constitution (122nd Amendment) Bill, 2014 February, 2015 FM - GST by 1st April, 2016 6th May, 2015 The Constitution (122nd Amendment) Bill, 2014 passed by Lok Sabha 12th May, 2015 The Constitution (122nd Amendment) Bill, 2014 - Rajya Sabha - Referred to Select Committee Anirudh Sonpal

The inherent characteristic of GST being that it is a Value Added Tax Does India presently have a VAT system of Indirect taxation? If yes, why GST? If not, what does GST seek to achieve? Is GST merely a Tax Reform structure? Anirudh Sonpal

Milestones – towards GST Excise – 1986 - Modvat Credit on selected Goods 2002- Cenvat Credit – all Goods 2004- Comprehensive Cenvat Credit– Goods and Services VAT – States – 2005-2008 Service Tax – 1994 - Introduced on Selected services 2012 - Negative List based Taxation Growth Ahead GST Anirudh Sonpal

GST - Defined Any Tax on Supply of Goods or Services or both, other than on Alcohol for Human Consumption [Proposed Article 366 (12A)] For a consideration? Goods – Includes all materials, commodities and articles [Article 366 (12)] Services – means anything other than Goods [Proposed Article 366 (26A)] Anirudh Sonpal

Entry Tax/ Entertainment Tax Courtesy - ICAI Present Tax Structure Entry No. 84, List I, Schedule VII Service Tax Sales Tax / VAT / CST Customs Duty Entry Tax/ Entertainment Tax Residuary Entry No. 97, List I, Schedule VII Entry No. 54 of List II (VAT) and 92 A of List I (CST) Entry No. 83, List I, Schedule VII Entry No. 52 & 62, List II, Schedule VII Taxable Event is Manufacture Taxable Event is Provision of Service Taxable Event is Sale Taxable Event is Import & Export Taxable Entry is Entertainment & Entry of Goods Median Rate – 12.5 % Single Rate - 14 % Rate – 5 %, 12.5 % & 20 % Median Rate 24.72 % Excise Duty

GST – Important Features & Objectives Integrated and Comprehensive Value Added Tax Structure Applies to all stages on value addition in the value chain of taxable Supply of Goods and Services across the country (as against manufacture, sale or provision of service) except – Exempted Goods or Services - common list for CGST & SGST Goods or Services outside the purview of GST Transactions below Threshold limits Destination based Taxation – Place of Supply Uniform Tax Structure across country Avoid Cascading Effect of Taxes & Double/Multiple Taxation No tax on tax – VAT on ED component? No Classification issues -Valuation – Sale vs Service? Works Contract? Deemed Taxation? Seamless Flow of Cenvat Credit Anirudh Sonpal

GST in India – VAT Chain Eg: GST Rate is 20 % Raw Material Net GST = GST on Output – Input Tax Credit RS. 100 RS. 20 Manufacturer Net GST = RS. 50 RS. 20 Raw Material RS. 12 Manufacturer RS. 08 Wholesaler RS. 10 Retailer RS. 50 VAT @ 20% = Rs. 12(i.e. RS. 32 - RS.20) RS. 160 RS. 32 Wholesaler VAT @ 20% = Rs. 8(i.e. RS. 40 - RS.32) RS. 200 RS. 40 Retailer VAT @ 20% = Rs. 10(i.e. RS. 50 - RS.40) RS. 250 RS. 50 Consumer Anirudh Sonpal

Simple Illustration on flow through Supply chain… Goods from Producer to Wholesaler Present Structure (Rs.) GST Cost of Production 80,000 ADD: Producer’s margin of profit 20,000 Producer’s Price 1,00,000 Central Excise duty @ 12% 12,000 Nil VAT at 12.5% 14,000 Central GST @ 12% State GST @ 12% Total Price 1,26,000 1,24,000 Anirudh Sonpal

Simple Illustration on flow through Supply chain… Goods from Wholesaler to Retailer Present Structure (Rs.) GST Cost of goods to Wholesaler 1,12,000 1,00,000 ADD: Profit margin at 5% 5,600 5,000 Total 1,17,600 1,05,000 VAT at 12.5%[14,700 (12.5% of 1,17,600) – 14,000] 700 Nil Central GST @ 12% 600 State GST @ 12% Total Price 1,18,300 1,06,200 Anirudh Sonpal

Simple Illustration on flow through Supply chain… Goods from Retailer to Consumer Present Structure (Rs.) GST Cost of goods to retailer 1,17,600 1,05,000 ADD: Profit margin at 10% 11,760 10,500 Total 1,29,360 1,15,500 VAT at 12.5% 1470 Nil Central GST @ 12% 1260 State GST @ 12% Total Price to the final consumer 1,30,830 1,18,020 Tax component in the price to the final consumer 28,170 27,720 Final price exclusive of taxes 1,02,660 90,300 Anirudh Sonpal

Central Taxes to Subsumed State Taxes to subsumed Taxes to be Subsumed Central Taxes to Subsumed Central Excise duty (CENVAT) Additional duties of excise Excise duty levied under Medicinal & Toiletries Preparation Act Additional duties of customs (CVD & SAD) Service Tax Surcharges & Cess State Taxes to subsumed State VAT / Sales Tax Central Sales Tax Purchase Tax Entertainment Tax (not levied by the local bodies) Luxury Tax Entry Tax ( All forms) Taxes on lottery, betting & gambling Anirudh Sonpal

GST - Coverage All goods or services likely to be covered under GST except : Basic Customs Duty Alcohol for human consumption - State Excise plus VAT Electricity - Electricity Duty? Real Estate - Stamp Duty plus Property Taxes ? Road Tax? Petroleum Products (to be brought under GST after 2 years - recommendation of GST Council- after 2 years) Tobacco Products under GST – additional Excise by Centre? Anirudh Sonpal

GST Model GST Model CGST – Central Goods & Service Tax SGST- States Goods & Service Tax IGST – Integrated Goods & Service Tax [Inter State Supply] Anirudh Sonpal

GST – Dual Model GST in India envisaged on destination/consumption principle - Tax revenues accrue to the destination/importing State, based on Place of Supply Rules CGST and SGST on intra-State supplies of goods or services in India Dual GST having two concurrent components: Central GST levied and collected by the Centre State GST levied and collected by the States Both Taxes will simultaneously apply on each transaction Anirudh Sonpal

GST – Dual Model IGST (Integrated GST) on inter-State supplies of goods or services in India - levied and collected by the Centre Place of Supply to determine the place where the supply of goods/services will take place and to determine whether supplies are inter state or intra state IGST applicable to Import of goods and services – imports at par with local supply? Inter-state Stock Transfers of goods and services? (Appropriate provisions to be made for consignments and stock transfers) Anirudh Sonpal

IGST Model Centre to levy IGST on all inter‐State transactions IGST equal to CGST + SGST - IGST Model envisages that the Centre will levy tax at a rate approximately equal to CGST+SGST rate on inter-State supply of goods & services Inter‐State Seller to pay IGST on value addition after adjusting available credit of IGST, CGST, SGST on his purchases Exporting State to transfer to Centre the credit of SGST used in payment of IGST Importing dealer to claim credit of IGST while discharging his output tax liability in his own State Anirudh Sonpal

IGST Model Centre to transfer to the importing State the credit of IGST used in payment of SGST IGST model permits cross-utilization of credit of IGST, CGST & SGST for paying IGST unlike intra-State supply where the CGST/SGST credit can be utilized only for paying CGST/SGST respectively IGST credit can be utilized for payment of IGST, CGST and SGST in sequence by Importing dealer for supplies made by him It would basically meet the objective of providing seamless credit chain to taxpayer located across States IGST model obviates the need for refunds to exporting dealers as well as the need for every State to settle account with every other State- Central Government will act as a clearing house and transfer the funds across the States Anirudh Sonpal

Simple Illustration of IGST Model Sale price 100 Add: CGST (12 %) 12 Add: SGST (12 %) Total 124 Manufacturer (Rajasthan) CGST + SGST Buyer (Rajasthan) Buyer (Delhi) IGST Sale price 124 Add: IGST (24 %) 29.76 Total 153.76 IGST payable (29.76-12-12) 5.76 IGST payable by utilizing IGST, CGST, SGST Anirudh Sonpal

Credit Mechanism ITC of SGST only against SGST and ITC of CGST only against CGST – no cross utilization between SGST and CGST ITC of CGST – CGST and IGST ITC of SGST – SGST and IGST ITC of IGST against IGST, CGST and SGST – in the order 1% Additional GST – not cenvatable Anirudh Sonpal

GST – Input Tax Credit Output Tax Input Credit ITC Allowed IGST SGST CGST Anirudh Sonpal

IGST – Simple Illustration Supply Goods Supply Goods Mr. X Mr. Y Mr. Z Charged IGST 24% Charged CSGT 11% SGST 14% (Gujarat) (Rajasthan) (Rajasthan) Final Consumer Input Credit with Mr. X CGST 11 % SGST 12 % Input Credit with Mr. Y IGST 24% Centre will transfer 13% IGST to Rajasthan State Paid 1% IGST to Central Govt. by Mr. X: IGST Payable: 24% Less: Input Credit CGST 11% SGST 12% Net IGST Paid 1% Paid 1% SGST by Mr. Y : CGST Payable: 11% SGST Payable: 14% Less: Input Credit IGST 24% Net SGST Paid 1% Courtesy - ICAI

IGST – Simple Illustration Important points noted from above example: Gujarat Government in this transaction will not get any tax since it is inter state supply from Gujarat to Rajasthan Central Government will get 13% IGST on inter-state supply of goods to Rajasthan (12% from Gujarat Government and 1% paid as Cash by Mr. X) Rajasthan Government will get 14% SGST for intra-state supply of Goods (13% from central Government and 1%paid as cash by Mr. Y) Important to note is that Mr. Y (based in Rajasthan) has been allowed full credit of IGST paid by Mr. X (based in Gujarat) of 24% Courtesy - ICAI

Rate Structure RNR Rate that will assure current level of revenue generation to Centre & States 27% ? Additional 1% as per Constitutional Amendment Bill – for net Producers vs net Consumers Anirudh Sonpal

Rate Structure Standard Rate – CGST SGST – Floor Rate with Bands IGST Merit Rate – Essential / Social Impact Special Rate - Precious Metals Nil Rate Threshold Exemption – status of Other Exemptions currently available? Compounded Rates – Small Taxpayers – upto specified limits Export of goods and services - Zero rated Anirudh Sonpal

International Rates of GST Country Rate of GST % Japan 5 % Canada 7 % Australia 10 % New Zealand 12.5 % South Africa 14 % China 17 % UK 17.5 % Italy 20 % Denmark 25 % Anirudh Sonpal

Impact Procurement – Warehousing – Logistic and Distribution Working Capital Compliances IT Platform Anirudh Sonpal

Beginning of another Journey ? Anirudh Sonpal GST in India Beginning of another Journey ?

GST – The Journey from here… The constitution (122nd Amendment) Bill, 2014 to be passed by 2/3rd voting members of Rajya Sabha The Bill to be ratified by minimum of 50% of the State Legislatures The States to amend their respective constitutions Formation of GST Council – Decision Making Body – Autonomy of States? GST Legislation – Centre & States 1st April, 2016 - a statement of intent or a prayer? Sleepless nights to meet the deadlines – only for FM? Anirudh Sonpal

Presented By: CA Anirudh Sonpal