kpmg

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Presented By
CA Swatantra Singh, B.Com , FCA, MBA
Email ID singh.swatantra_at_gmail.com New
Delhi , 9811322785, www.caindelhiindia.com,
www.carajput.com
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GST Where are we and what next ?
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To recapitulate GST Principles
Business
Imports - Taxed
Business
Exports Relieved of tax
Internal trade Tax sticks to goods
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GST Model
Central Level GST
State Level GST
Centre and State to legislate, levy and administer
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How is it different from current system ?
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Central VAT/Service Tax to GSTCurrent and
Proposed Design Features

• Tax on manufacture of goods provision of
  services Tax on supply of goods services
• Multi point tax with input tax credit - same
• Standard rate across country national level -
  same
• Exports zero rated almost full input tax
  credit same
• Imports subject to CenVAT/Service tax - same

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Central VAT/Service Tax to GSTCurrent and
Proposed Design Features

• Invoice based credit system - same
• Registered dealer concept for maintaining chain
  not required
• Value added by trade not captured will be
  captured

Origin based Manufacturing Sector Goods VAT
Service Sector VAT to Central GST
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State VAT to State GSTCurrent and Proposed
Design Features

• Tax on sale of goods services not covered
  services will be covered
• Multi point tax with input tax credit - same
• Exports zero rated full input tax credit for
  state VAT and partial for service tax - same

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State VAT to GSTCurrent and Proposed Design
Features

• Imports tax free will be taxable
• Invoice based credit system - same
• Value added by trade for goods captured same

Destination based Trade Sector Goods VAT to
S-GST
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To what advantage why dual model ?
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Two level GST - merits

• Achievable from constitutional perspective
• No adverse impact on Central and State Government
  revenues/ cash flows
• No need for major shift in staffing requirements
• GST on import of goods issue of unequal
  treatment of domestic and imported goods
  addressed
• Exports can be relieved of taxes more
  competitive

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Revenue Receipts- Indirect Taxes
(State level)
2004-05 (as a of the total revenue) 2005-06 (as a of the total revenue) 2006-07 (as a of the total revenue)
Sales Tax 61.7 61.6 62.6
State Excise Duties 11.6 11.6 11.4
Stamp duty Reg. fee 10.4 10.7 11.0
Other Taxes 16.3 16.1 15.0
Total 100 100 100
Comprises of General Sales Tax, Central Sales
Tax, Sales Tax on motor spirit and Purchase Tax
on sugarcane, etc.
Source Economic Survey 2006-07 and State Finance
report from RBI website
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Two level GST - Demerits

• Cost of compliance for businesses- will continue
  to be high
• Apprehensions/risks continue
• Variable rates/Exemptions/trade diversion
• Non uniformity of classification
• Double taxation overlap between states and
  Centre and states
• Multiplicity of litigation.
  

Feel Good Factor ( ? )
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International Comparatives?

• Australia ?
• United States of America ?
• Canada ?
• Brazil ?
• EU ?

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Major Reform.what is reform ?

• A tax loophole is something that benefits the
  other guy. If it benefits you, it is tax reform.

Full of challenges
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Issues and Challenges
Taxes to be Subsumed
Constitutional Amendment
Interstate sales Goods Services
Number of laws
Input tax credit
Classification
Valuation
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Constitutional Amendments

• Central List
• State List
• New List ??

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Taxes to be subsumed?

• Central Level
• State Level

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Comprehensive

• Sin/Demerit goods?
• Services ?

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Statute/Rules

• Two
• 28

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Rates

• Same at Centre and State/for goods services?
• Same for intra state and interstate transactions
  ?
• Same for special types of transactions like works
  contracts, leases ?
• How many ? Fixed / Variable flexibility within
  range ? Exemptions ?
• Who should determine ?

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GST Rates - International comparison
CENVAT 10.3 VAT12.5
Source KPMG
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Classification

• Common across the country?
• Interpretations how to ensure uniformity?

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Valuation

• Tax base for both levels same ?
• Common across the country ?
• Interpretations how to ensure uniformity?
• MRP based and like should continue ?

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Interstate Transactions

• Intra-state and Inter-state Trade avoid double
  and no taxation
• Goods
• Services
• Central Sales Tax Act abolition or
  modification?

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Central Sales Tax
Budgetary support of Rs 5495 crore
Source State finance report from RBI website
Budget speech 2007-08
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Proposed IGST Model
Manufacturer (Maharashtra)
Sale price 100
Add CGST (10 percent) 10
Add SGST (10 percent) 10
Total 120
CGST SGST
Buyer (Maharashtra)
Sale price 120
Add IGST (20 percent) 24
Total 144
IGST payable (24-10-10) 4
IGST payable by utilising IGST, CGST, SGST IGST payable by utilising IGST, CGST, SGST
IGST
Buyer (Delhi)
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Impact of taxing Inter-state stock transfers
Illustration
Raw Material Pre GST Pre GST Pre GST
Raw Material Price Excise (10) VAT (12.5) / CST (2)
Product X (local) 400 40 55
Product Y (inter-state) 400 40 8.8
Total 800 80 63.8
Raw Material Post - GST Post - GST Post - GST Post - GST
Raw Material Price CGST (10) SGST (10) IGST (20)
Product X (local) 400 40 40 -
Product Y (inter-state) 400 - - 80
Total 800 40 40 80
Company A manufactures Product P which is stock
transferred at INR 1000
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Input Tax Credit

• Comprehensive for each level
• Central to Central and State to State
• Restrictions and limitations capital goods,
  consumables, promotional materials, fuel?
• Deemed sale transactions
• Interpretations how to ensure uniformity ?

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Proposed Credit utilisation under GST
Credit available for utilisation
IGST
CGST
SGST
Output Liability
IGST, CGST, SGST
CGST, IGST
SGST, IGST
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Basic Exemption

• Common or different?
• For goods and services
• For Central GST and State GST
• Between States
• Should apply on cumulative basis?

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Others

• Incentive Schemes
• Records
• Advance Rulings
• Assessments / Audits
• Transition provisions
• More

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Other Issues
Taxable event sale / supply (for inter-state) /
raising of invoice
MRP scheme to be abolished
Impact on high seas sales, exemption to
in-transit sales?
Job work whether supply of goods or service?
Job work arrangements - valuation, treatment of
credit etc
Transition related matters closing stock,
accumulated credit
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Central Indirect Tax Regulatory Authority/GST
Council formalization of EC...
a possible solution ?
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Road ahead what businesses ought to do?
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What this transition will entail
Changes in effective tax rates for supplies as
well as purchases
Supply chain Tax cost on sourcing/ distribution/ logistics
Finance Impact on cash flows, project costs
Marketing Impact on product price, promotional schemes
IT Invoicing, returns, MIS reports
Transactions/ Supplies which are currently exempt
from tax may become liable to GST, and vice-versa
Input taxes which are currently a cost may be
eligible as credit in future
Special tax computation schemes, valuation
provisions may be amended/ withdrawn
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Compute GST Liability
Manufacturer-Maha
Assumptions C-GST 12 S-GST 8 I-GST 20
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Basic Elements of GST

• GST is an indirect tax on consumption.
• GST (multi-stage) is contemplated to be charged
  and collected at each stage of the production /
  processing / trading, on the value addition of
  goods and services
• A dual GST is being proposed wherein a Central
  Goods and Services Tax (CGST) and a State Goods
  and Services Tax (SGST) will be levied on the
  taxable value of a transaction.
• Imports would be subject to GST.

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Basic Elements of GST

• Exports would be zero-rated.
• GST must contemplate set-off of tax paid on
  inputs / capital goods and services.
• GST will require maintenance of accounts of tax
  paid on purchases and sales of goods and
  services.
• In a GST regime the tax component in any
  transaction is identifiable /computable

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VAT vs GST - Preamble

• VAT / CST

• GST

• Governed under entry no. 54 of List II and entry
  no. 92A of the List I to the Seventh Schedule

• GST will be governed under List I of the Seventh
  Schedule
• GST will be governed under List II of the Seventh
  Schedule
• Or
• Possible that both CGST and SGST will be governed
  under List III of the Seventh Schedule

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VAT vs GST Preamble

• VAT / CST

• GST

• Article 286 lays down the principles for
  formulating the transactions relating to export /
  import / sale effected outside the State

• It appears that Article 286 may continue even
  under GST regime with certain modifications to
  include interstate movement of goods and
  principles relating to services

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GST Preamble

• Taxes most likely to be subsumed by GST
• Central Excise
• Service tax
• Additional duty of customs
• VAT
• Entry tax not in lieu of Octroi
• Luxury tax, Entertainment tax, Electricity taxes.
  Most of the Local laws, except stamp duty.
• State surcharges related to supply of goods and
  services
• Customs duty will remain outside GST

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VAT vs GST Preamble

• VAT / CST

• GST

• Currently there are 29 State VAT laws
• CST law applicable in case of inter-State
  transaction and subject to tax at the rate of 2
  (against C Form) or local rate (without C Form)
  as the case may be

• It appears that even under GST regime there will
  be 29 SGST laws and one CGST law.
• IGST law will be favoured in respect of
  inter-State movement of Goods. The taxes charged
  under IGST could be available for set-off.

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VAT vs GST - Preamble

• GST

• VAT / CST

• Same will be the case even under GST regime
• No set-off will be allowed under other State
  levies
• It appears there will be certain restrictions in
  respect of allowing set-off of Central GST
  against State GST or vice versa. Further Customs
  duty paid may not be allowed as set-off under
  State GST.

• VAT is not adopted in its pure form
• No set-off is allowed on central sales tax paid
  and other State levies such as luxury tax, entry
  tax etc

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VAT vs GST - Preamble

• VAT / Service Tax / Excise

• GST

• Under VAT law Goods are listed for the purpose
  of levy of taxes
• Under Service Tax Taxable services are defined
• Under Excise Law Excisable Goods are listed for
  the purpose of levy of taxes

• Under CGST / SGST
• Goods will be listed for the purpose of levy of
  taxes. This will be based on the HSN
  classification
• Services will be defined as those which are not
  goods. The law will only list down the exempted
  services.

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VAT vs GST - Registration

• VAT/CST

• GST

• Registration is mandatory under
• SGST threshold limits will be in the range of
  Rs. 10 lakhs.
• CGST threshold limits will be in the range of
  Rs. 10 lakhs
• Two registration numbers may be applicable one
  for CGST based on PAN number and other for SGST
  State wise which may include KTEG / PT

• Registration mandatory if the total turnover is
  in excess of Rs. 2 lakhs (Rs. 1 lakh in certain
  cases).
• One registration number (TIN) applicable for VAT
  / CST / KTEG / PT.

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VAT vs GST - Transitional Provision

• VAT / CST

• GST

• Transitional provisions Set-off may be allowed
  in the following manner
• Excise duty / service tax (CENVAT credit) will be
  allowed only against Central GST
• VAT will be allowed to be set-off only against
  State GST
• CST paid would not be entitled for set-off
• Credits relatable to immediately preceding 6
  months or 1 year and are lying in the stock / WIP
  in respect of goods. Services is an issue.

• Transitional provisions allowed to avail
  set-off only in respect of those purchases which
  are
• effected within the State
• effected within one year and
• Lying in the closing stock

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VAT vs GST Output tax / Output service

• VAT

• GST

• Applicable on both goods and services
• In respect of goods, the SGST levy will be origin
  based whereas in respect of service tax the levy
  will be consumption based.
• The rate of tax that may be followed by different
  States are
• Central GST - 8 to 10, 0, 1, 4, 20 and
  exempt
• State GST - 8 to 10, 0, 1, 4, 20 and
  exempt.

• Applicable on sale of goods
• It is an origin based levy
• The rate of tax followed by different States
  are
• 1, 4, 7.5,8, 12.5, 20, 2, 5, 15 etc

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VAT vs GST Output tax / Output service

• VAT / CST

• GST

• Few commodities are subject to tax under the KST
  law even after VAT is introduced.

• It appears that KST / VAT / CST law will continue
  parallelly even under the GST regime and may not
  be repealed till such time litigation concludes
  and time for revision exists.
• In respect of inter-State movement of goods IGST
  will be introduced.

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Integrated GST (IGST)

• In case of inter-State movement of goods
• The dealer is required to pay IGST.
• IGST will be administered by the Central
  Government.
• The buyer will be entitled to avail IGST as
  credit and can claim set-off against only CGST or
  IGST

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VAT vs GST Output tax / Output service

• VAT / CST

• GST

• It is widely expected that HSN system of
  classification will be implemented only in
  respect of Goods but not in respect of services.
  Both Centre and State will list down the services
  which would be exempt.
• The same concept will be implemented wherein the
  taxes will be levied on sale price. However, in
  respect of services, valuation rules might be
  considered.

• The concept of HSN classification is not followed
  in totality.
• Tax will be levied on sale price

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VAT vs GST Output tax / Output service

• VAT / CST

• GST

• Declared goods under the CST law is subject to
  tax at the rate of 4
• Each State has the power to exempt few
  commodities
• C Form / Form F / Form H / Form I

• The concept of declared goods may be continued
  even under the GST regime specifically under
  State GST
• Same may be continued even under the GST regime
• Similar statutory forms will be continued in
  order to have control over the movement of goods
  from one State to another State

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VAT vs GST Output tax / Output service

• VAT / CST

• GST

• Possible that there will be a different chapter
  itself in respect of works contract. However,
  each State may have its own method of levying
  taxes on works contract. A set-off valuation
  rules might be introduced in this regard.
• Same may not be continued under the GST regime.
  However, each SGST law may have composition
  scheme for small dealers, subject to threshold.

• Works contract is a complex issue and subject to
  tax only in respect of goods sold.
• Composition scheme is applicable for works
  contract

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VAT vs GST Input tax / CENVAT credit

• GST

• VAT / CST

• Set-off may be permissible in respect of
  inter-State purchase since the IGST payable in
  the buying State will be subject to e-clearing
  home mechanism.
• Set-off may not be allowed in respect of customs
  duty under SGST.

• No set-off against inter-State purchases
• No set-off against duty paid under both Central
  Excise and Service Tax
• No set-off against Customs duty paid

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VAT vs GST Input tax / CENVAT credit

• VAT / CST

• GST

• Partial rebating is allowed in respect of goods
  used for both taxable and exempted
• Stock transfer to a place outside the State - not
  liable to tax but subject to input tax
  restriction

• Partial rebating concept may be introduced even
  under the GST regime. There will be different
  formulae one needs to adopt for CGST and SGST
• Major issue under the GST law more specifically
  concerned with stock transfer of services. It
  appears that there will not be any stock transfer
  concept under GST regime in respect of services.

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VAT vs GST Input tax / CENVAT credit

• VAT / CST

• GST

• Input tax credit in respect of specified capital
  goods is allowed immediately in few States.
• Movement of capital goods from one State to
  another input tax credit is allowed partially

• IGST set off may be allowed over a period of
  time
• SGST May vary between the States
• SGST May be allowed partially and be subject to
  restrictions

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VAT vs GST General Exemption

• VAT / CST

• GST

• Sale to SEZ unit / International Organization
• Based on white paper around 50 commodities were
  identified for the purpose of exemption

• Same will continue even under the GST regime
• Similarly, States may be empowered to exempt
  certain commodities. In other words, goods which
  are exempt from State GST need not be exempted
  from IGST.

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VAT vs GST - Administration

• VAT / CST

• GST

• VAT / CST law administered by one authority
• Clarification / Notification issued by the
  authorities / Government is applicable only in
  the State

• State GST will be administered by the State and
  Central GST will be by the Union.
• Clarification / Notification issued by the Union
  in respect of Central GST may not hold good in
  the appropriate State and vice versa

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VAT vs GST - Administration

• VAT / CST

• GST

• Assessee / Dealer is subject to various
  assessments, appeals etc.
• Few States have abolished Advancing Ruling
  Authority

• Even under the GST regime, the dealer / assessee
  will have to undergo various assessments, appeals
  etc.
• Advance Ruling provision may be enacted subject
  to certain conditions. It appears that two
  authorities will be constituted.

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VAT vs GST - Administration

• VAT / CST

• GST

• In respect of inter-State transaction CST law
  monitors the movement of goods and also the
  applicability of taxes
• Checkpost is established for monitoring the
  movement of goods within the State

• There will be clearing housing mechanism which
  will be adopted in the GST regime for inter-State
  transactions.
• The concept of checkpost will be continued even
  under GST regime

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• Presented By
  
• CA Swatantra Singh, B.Com , FCA, MBA
• Email ID singh.swatantra_at_gmail.com
• New Delhi , 9811322785,
• www.caindelhiindia.com,
  
• www.carajput.com

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Thank You