Goods and Services Tax

Now-a-days our country is following the unitary system for collection of Indirect Taxes levied on manufacture, sale and consumption of goods as well as services in order to create a suitable reform in Indirect tax from both domestic and foreign investment perspective thereby reducing burdensome compliance, high cost of transaction and nagging uncertainty in tax liability for a business.

The budget speech of 2006-2007 included a proposal for commencement of Goods and Services Tax (GST) and in the budget speech of 2009-10 it has been said again that the introduction of GST would be accelerated with effect from April 01, 2010.

GST model is outlined with a dual GST consisting of a Central and a State GST. To relieve the pressure on States, an assistance of Rs 1,000 crore will be provided to them for GST implementation

The Indian government is studying tax reforms that include many other Central and State level direct and indirect taxes, excise duties, service tax and luxury tax, and replace them with a single Goods and Service Tax (GST). Customs duty will be levied out of GST and is likely to be replaced by VAT on imports.

The introduction of goods and services tax will create an effect for abolition of taxes such as octroi, Central sales tax, State level sales tax, entry tax, stamp duty, telecom licence fees, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and services, and get rid of the cascading effects of multiple layers of taxation.

The predicted rate for the proposed GST is going to be 20 percent. Petroleum products and liquor are however likely to stay behind the GST structure. Liquor and tobacco could be included in GST. States could impose an additional tax on these products.

Goods and services that are subject to GST can be taxed at standard rate, which is at a fixed rate of, for example 5% or 10%, and at zero rate. Zero rating is a concept only found under the GST framework. Suppliers of zero rated supplies do not collect GST because the GST rate is zero

GST System
Systems of GST There are three recognized systems for GST worldwide -

(a)InvoiceSystem (b)PaymentSystem (c) Hybrid System .....

(a) Invoice System: In this system the GST (Input) can be claimed on the basis of acknowledgement of invoice, put aside the matter whether payment is cleared or not. The GST (Output) is accounted for when invoice is raised. Here the time of receipt of payment keeps no value.

It may be considered as mercantile system of accounting. In our country prevailing system of sales tax on goods is an invoice system of VAT and it bears no value for taxpayer if he follows the cash basis of accounting or mercantile basis of accounting.

This system has both the advantages & disadvantages. The benefit can be derived from this system is that the input credit is claimed without clearing payment. The disadvantage of the invoice system is that the payment for GST has to be made without receiving the payment.

(b) Payment System: In this system the GST (Input) can be claimed at the time of making the payment for purchases and the GST (Output) is accounted for when the payment is cleared. In payment system, it has no value whether the assessee is preserving the accounts on cash basis or not.

This system has both the advantages & disadvantages. The advantage is that no sooner the payment for the goods and/or services is received the Tax (output) should not be deposited. The disadvantage is that the GST (input) cannot be acclaimed without releasing the payment. The Taxes on services in India are based on this payment system as the service tax is to be paid on receipt basis and further Cenvat credit is only permissible when payment of the service is made.

(c) Hybrid System: In this system GST (Input) can be claimed at the time of receiving invoice and GST (Output) is accountable on the ground of payment, if allowed by the law. In some countries the dealers have to put their option for this system or for a reversal of this system before adopting the same.

Goods and Services Tax (GST) is a part of the proposed tax reforms that center round evolving an efficient and harmonized consumption tax system in the country. Presently, there are parallel systems of indirect taxation at the central and state levels. Each of the systems needs to be reformed to eventually harmonize them. In the Union Budget for the year 2006-2007, Finance Minister proposed that India should move towards national level Goods and Services Tax that should be shared between the Centre and the States. He proposed to set April 1, 2010 as the date for introducing GST. World over, goods and services attract the same rate of tax. That is the foundation of a GST. The first step towards introducing GST is to progressively converge the service tax rate and the CENVAT rate.