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GOODS AND SERVICES TAX

RAKESH SINGH

Major Milestones in Indirect Tax Reform

1974

Report of L. K. Jha Committee - suggests VAT

1986

Introduction of a restricted VAT called MODVAT

1991

Report of the Chelliah Committee - recommends VAT/Goods & Services Tax (GST) - recommendations accepted by Government
RAKESH SINGH

Major Milestones in Indirect Tax Reform

1994

Introduction of Service Tax

1999

Formation of Empowered Committee on State VAT

Jan 2000

• Implementation of uniform floor sales tax rates (1%, 4%, 8% & 12%) • Abolition of tax related incentives granted by States
RAKESH SINGH

Major Milestones in Indirect Tax Reform

April 2003

VAT Implemented in one State

Sept 2004

Significant progress towards a Central VAT/ GST - Integration

April 2005

VAT Implemented in 21 States

April 2006
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VAT implemented in 5 more States

Major Milestones in Indirect Tax Reform

Jan 2007

First GST Study Released By P.Shome

Feb 2007

FM announces for GST in 2010 in Budget Speech

April 2007

CST Phase Out Starts

May 2007
RAKESH SINGH

Joint Working group formed by EC

Major Milestones in Indirect Tax Reform

Nov 2007

WG Submits its report

April 2008

EC finalizes its view on GST Structure

July 2009

FM Commits for GST from 1.4.2010

RAKESH SINGH

GST : Global Perspective
 

No. of countries : 140 Global Average GST Rate
    

Sweden & Denmark U.K. China New Zealand Japan & Singapore
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: : : : :

25% 17.5% 17% 12.5% 5%
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GST : Global Perspective

International : ‘Single’ rate GST India :
‘Dual’ rate GST

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Impact of GST :
(In quantitative terms)
Additional tax revenue by GST : Rs. 1.00 Lac Crore per year

Total Disinvestment proceeds expected: Rs. 1.00 Lac Crore in next 5 years

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TAXES Proposed TO BE SUBSUMED IN GST

Central Taxes  Excise duty  Additional Excise duty  Service Tax  CVD, SAD  Surcharge

State Taxes
    

VAT Entertainment tax levied by states? Luxury tax Tax on Lottery Entry tax other than for local bodies
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TAXES CURRENTLY PROPOSED TO BE NOT INCLUDED IN GST

Central Taxes  Specific Cess  Excise duty on tobacco products State Taxes  Items containing alcohol  Entertainment tax (local Bodies)  Entry tax for local bodies  Electricity duty
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GST: KEY FEATURES

       

Dual GST: Central GST & State GST Destination based State GST Common Base Uniform Classification Uniform Forms – Returns, challans etc No cascading of Central and State taxes Cross credit between Centre and State not allowed Tax levied from production to consumption

RAKESH SINGH

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PROPOSED GST RATES

    

2 Rate structure: Lower and Standard Rate Precious metals and stones very low rate GST Exemption for some items (less than 100) Some Goods at lower rate (excludes Ind. inputs) 3 Petroleum products, liquor and narcotics excluded from GST regime – shall keep the RNR low Single tax rate for services
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INDICATIVE GST RATES

Exempted products:

Food Grains, Bread, Salt, Milk, Vegetables, Meat, Fish,

Goods at lower rate:

Tea, Milk powder, Coffee beans, Toy, Beedi, Bicycles

Govt. aided public health and education exempted

RAKESH SINGH

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GST: KEY FEATURES

 

HSN to be applied for goods Uniform return & collection procedure for central and state GST

 

13 digit PAN based Common TIN registration TINXSYS to track transactions

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TAXING OF INTER STATE TRANSACTIONS

Tax Payment by exporting dealer to the account of receiving state Credit allowed to the buying dealer by receiving state on verification Retention by receiving state on sale to nondealer Declaration form to be discontinued
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TAX EXEMPTIONS

AREA BASED:

To be discontinued after current eligibility period

PRODUCT BASED:

To be converted in to refund route

LIMITED FLEXIBILITY:

To Centre & States barring few exceptions
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Action to be taken / ISSUES YET TO BE DECIDED

Constitutional amendment authorising state to collect and retain tax on services. Integration of certain Central & State taxes (Various Cess, Electricity duty, Entertainment tax etc) Taxation of inter-state services and their method of taxation Stock transfers Road permits and check posts
RAKESH SINGH

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ISSUES FROM INDUSTRY’S PERSPECTIVE

Protecting existing exemptions and concessions availed by units – central, state, local bodies Protecting present and future revenues of state and centre – Revenue Neutral Rate (RNR) Dialogue with Industry and all stake holders GST Code to be made public atleast 6-9 months before implementation Industrial inputs, Capital goods at lowest rate, say 1% List of exempted goods – specific/common across states Stock transfers should be exempted, monitored thru’ system based controls RAKESH SINGH 19

 

  

ISSUES FROM INDUSTRY’S PERSPECTIVE

  

All declaration forms (Form F, C) should be abolished Monitoring through system based controls Full set-off of Input tax credit to the assessee / entity, based on principle of business cost and expenditure Immediate credit of stock transfers, without one-to-one corelation. Set-off should be on entity / concern basis. Refunds, if any, should be automatic through system based controls.
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 

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FAVOURABLE IMPACT ON INDUSTRY

Seamless credit to trade and industry throughout supply chain will improve competitiveness Common Tax Base will eliminate tax cascading CST phase-out will reduce supply chain cost Economy in production scale & efficiency in distribution Simplified structure to reduce transaction cost
RAKESH SINGH

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COST INCREASE IN CERTAIN SECTORS

Increased tax incidence on infrastructure including power due to non availability of tax credit Continuing electricity duty, entertainment tax & Cess will adversely affect some sectors due to double taxation Impact on certain products due to rate increase
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ADMINISTATIVE ISSUES/Bottlenecks

Grant of ITC for inter-state transactions by receiving state depends on efficient banking and related mechanism Lack of IT preparedness of certain States is a key bottleneck Success of the proposed GST structure critically depends on operation of the effective IT system Getting tax refunds for exempted goods based on budgetary allocation may delay refunds
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WAY FORWARD

Industry, professional Institutes like ICWAI, trade associations etc should represent on key issues and work with Govt. for smooth transition Companies should do impact analysis, gear up for new tax regime, prepare for the transition phase reengineer business processes
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Alternative Model for
TAXING INTER STATE B to B TRANSACTIONS

Tax Payment by exporting dealer to the account of Centre as IGST after adjusting SGST & CGST Credit allowed to the buying dealer of IGST against IGST, CGST or SGST Settlement of IGST Account between receiving and exporting states by clearing agency Same principle for stock transfers
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Supply Chain
Manufacturer Service Provider Retailer Customer
RAKESH SINGH

Goods Excise Duty Total

Rs.100 Rs. 10 Rs.110

Goods Rs.150 Service Tax Rs.15 Total Rs.165 (Credit of Rs.10) Goods Rs.200 Sales Tax Rs.20 Total Rs.220 (Credit of Rs.15)

Total Tax to Govt= 10 + 5(15-10) + 5(20-15) =20

RNR- A CALCULATON
(a) (b) (c) (d) (e) (f) (g) (h)

Total Revenue Collection in 2005-6 (Excise/Service Tax/Vat/ST- Motor Fuel) for Center-Total Revenue Collection in 2005-6 (Excise/Service Tax/Vat/ST-Motor fuel) for States-SAY Total Total Public Expenditure on all Goods and Services Adjusted Expenditure after (Excise / ST and PCE on Motor Fuel) RNR ( 200/1800*100) RNR for Center (80/1800*100) RNR for States

80 K Crores 111 K Crores 200 K Crores 2072 K Crores 1800 K Crores 12% 5% 7%

RAKESH SINGH

SOME DATA OF U.P.
Population =17Cr Growth ate=7%+
Share of Various Contributors in U.P 2008-2009

28% 45% Agriculture Industry Services

27%

RAKESH SINGH

THANK YOU FOR NOW
RAKESH SINGH FICWA M/s Shome & Banerjee New Delhi-110014

RAKESH SINGH