1. GOODS AND SERVICE TAX (GST) IN INDIA
– Challenges Ahead
January 29, 2012

2. AGENDA Present Indirect Taxation system in India
Concept of GST and other salient points
Why GST
Proposed GST Model and How it would work
IGST MODEL
Challenge before us
Opportunity for Company Secretary

3. PRESENT INDIRECT TAX SCENARIO IN INDIA
INDIRECT TAXATION
Sales Tax / VAT
Entertainment Tax
Luxury Tax
Taxes on lottery,
betting and gambling
Entry Tax
Octroi etc.
Central Excise
Custom Duty
Export Duty
Service Tax
Central sales Tax
STATE
CENTRAL

4. GST – GLOBAL SCENATIO
More than 150 countries have already introduced GST/ National Level VAT
Typically GST is a unified Tax System in most of the Countries
Canada and Brazil only have dual GST
Standard rate of most of the Countries ranges between %

5. WHAT IS GST ?
GST is a tax on goods and services, which is leviable at each point of sale or provision of services, in which at the time of sale of goods or providing the services the seller or service provider can claim the input tax credit (ITC) which he has paid while purchasing the goods or procuring the services.
A Comprehensive value added ax
Value added in each stage
on goods and services
Taking Input Tax Credit (ITC)

6. Total Tax collection =(30+10+10)=Rs50 which equal to 20% of Rs.250/-
GST CHART
Wholesaler
40-30=10
150+(15+15)
200+(20+20)
Department
of Tax
Manufacturer
Retailer
50-40=10 30
250+(25+25)
Customer
Assume GGST & SGST is 10%
Total Tax collection =( )=Rs50 which equal to 20% of Rs.250/-

7. Self policing or voluntary compliances
SALIENT POINTS OF GST:
A Comprehensive Tax on Goods and Services
Multi-point Tax on value added at each stage
Tax is only cost to the end customer
Consumption based tax not origin base
No cascading due to input credit mechanism
Self policing or voluntary compliances
Reduction of Tax evasion /Widens the taxation base

8. WHY GST ?
Division of power for imposition of tax between Central and State (Excise vs. VAT)
Multiplicity of taxes at the Central and States Level.
Multiplicity of taxable event.
Complexity in the present system
Cascading effect (i.e Tax on Tax) or Double Taxation
Central Sales Tax (CST): No ITC
Composite Contracts
No harmonized system of taxation

9. India is federal country.
GST MODEL
DUEL GST
CENTRAL GST
STATE GST
Why Dual GST :
India is federal country.
Centre and States have been assigned power to levy taxes
Benefits of Dual GST:
Reduction of no. of taxes at centre and State
Decrease in effective Tax for widen of tax base
Removal of current cascading effect
Reduction of transactional cost through simplified tax compliances

10. Subsuming of Central CST
Additional Excise Duty
Additional Custom Duty (CVD)
Service Tax
Central Excise Duty
Central GST
Excise Duty levied under the MTP Act
Special Additional Duty of Customs

11. State Cesses & Surcharges Taxes on lottery, betting & gambling
Subsuming of State GST
State Cesses & Surcharges
Entry Tax
Luxury Tax
VAT / Sales Tax
State GST
Entertainment Tax
Taxes on lottery, betting & gambling

12. DECISION DEFERRED ON FOLLOWING TAXES
NOT- SUBSUMING IN GST
Basic Custom duty
Basket of petroleum products: crude, motor sprit (including AFT) and HSD
Alcoholic beverages
Stamp duty
Purchase Tax
Electricity duty
Taxes on Natural Gas
Tax on vehicles and transport of goods & passengers
DECISION DEFERRED ON FOLLOWING TAXES

13. Salient Features of the Proposed GST Model
Applicable to all transactions of goods and services except:
the exempted goods and services
Goods which are outside the purview of GST and
the transactions which are below the prescribed threshold limits
CGST and SGST are to be paid to the accounts to the centre and the states separately.
ITC (Input Tax Credit):
ITC on central GST would be utilized only against the payment of CGST. The same principal will be applicable for SGST.
Cross utilization of ITC between the CGST and SGST would not be allowed.
The taxpayer would have to maintain separate book of accounts for utilization/refund of credit.

14. Salient Features of the Proposed GST Model
Threshold limit :
Minimum exemption limit has not decided as yet.
Present exemption limit:
Service tax:Rs. 10 lacs
Central excise Rs.1.5crores
Vat in different states Rs.1 lac to 5 lacs.
Compound/ Composition Scheme:
For Gross annual turnover of Rs. 50 lacs and the floor rate of 0.5% for small traders and small scale industries.
Optional GST registration is also allowed to dealers whose turnover below the compounding cut-off.
Each taxpayer would be allotted a PAN-linked taxpayer identification no. with a total of 13/15 digits.
Works contract Tax (WCT) would be abolished on or after implementation of GST.

15. RATE STRUCTURE
In GST, the rate may be expected be in the range of 16-20%
There may single rate for GST on services at the Central and State level
But in case of goods, there would be a few rates for Central and State GST :
Standard rate for general (RNR)
Special rate for gold & silver, other precious metal etc.
lower rate for necessary and goods of basic important
Exempted goods considering the special need of each state
In every transaction, both CGST and SGST would apply at pre-determined level.

16. Constitutional Amendments is Required
IMPORT BE TAXED UNDER GST ?
Both CSGT & SGST will be levied on import of goods and services
Incidence of tax will follow the destination based principal
Tax so paid will be available as input tax credit (ITC)
Constitutional Amendments is Required

17. EXPORT & EXEMPTION
Export would be zero rated
Similar benefits will be given to Special Economic Zones (SEZs).
Industrial incentives & Special Industrial Area Scheme :
The tax exemption, remission etc. related to industrial incentives would be converted into cash refund scheme after collection of tax.
Area based exemptions will continue up to legitimate time.
No new exemption, remission etc. would be allowed.

18. IGST MODEL: INTER-STATE TRANSACTIONS
IGST (CGST+SGST) on all inter-state transactions of taxable goods and services
Supplier will pay IGST after set-off available credit of IGST, CGST & SGST on his purchases.
The exporting state will transfer to the central agency the credit of SGST used for payment of IGST
The importing taxpayer will claim ITC of IGST against his IGST,CGST and SGST tax liability.
The central agency will transfer to the importing state the credit of IGST used in payment of SGST.

19. ILLUSTRATION Delhi Mumbai Central Agency Input Credit in Hand IGST 100
CGST 50
SGST 25
Mumbai
Input Credit in Hand
IGST 200
CGST 25
SGST 25
Central
Agency

20. Uninterrupted ITC chain on inter-state transactions
ADVANTAGE OF IGST MODEL
Uninterrupted ITC chain on inter-state transactions
No upfront payment of tax or substantial blockage of funds for the inter-state seller or buyer
No refund claim in exporting State
Self- Monitoring model
IT facility
All inter-state dealers will be e-registered

21. RULES REGARDING SET-OFF OF GST
Output
Input
Set-off Allowed
IGST
SGST
YES
CGST NO 21

22. MAJOR CHALLENGES
GST Rates
Constitutional Amendments for :
Sharing of resources and compensation
Administrative preparedness to implement the new tax regime
GST Council and Dispute settlement authority
Setting up IT structure :
Treatment of un-utilised tax credit carried forward under CENVAT and State VAT
Design and Structure: IGST Model, Issue like Service

23. Opportunity for CS and Other Professions
Advisory /Support to Government
Training to Corporate Staff
Decision making functions such as market strategies, stock transfer etc.
Registration of service tax in each State and cancellation of CST etc.
Special Audit /Certification like non applicability, exemption etc.
Helping the small business for composition scheme
Impact on various sectors

24. “Law cannot stand still, it must change with the changing social concepts and value. If the law fails to respond to the needs of the changing society, then either it will stifle the growth of society and choke its progress”
P N Bhawati
THANKS