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Goods and

Service Tax:
The Way Ahead

Why is GST
A

goods and service tax (GST) or value


added tax (VAT) is a tax on domestic
consumption. It is multi-stage tax for which
the tax burden is intended to fall on the final
consumer.

Under

GST, registered dealer is to charged


GST on its output and pay GST on inputs.
Difference of OUTPUT GST and input GST he
has to pay to the tax authorities.
To avoid cascading effect tax is paid on only
on the vale addition at each stage.

Why there is need to GST


The

design of the CENVAT and state VATs


was dictated by the constraints imposed by
the Constitution, which allows neither the
Centre nor the States to levy taxes on a
comprehensive base of all goods and
services and at all points in their supply
chain.

The

Centre is constrained from levying the


tax on goods beyond the point of
manufacturing, and the States in extending
the tax to services.

Why there is need to


GST

This

division of tax powers makes both the


CENVAT and the state VATs partial in nature
and contributes to their inefficiency and
complexity.
The CENVAT is levied on goods manufactured
or produced in India. This gives rise to
various issues as to what constitutes
manufacturing, and valuation issues for
determining the value on which the tax is to
be levied.

Why there is need to


GST

Tax

cascading effect
Central Sales Tax (CST) on inter-state sales,
collected by the origin state and for which no
credit is allowed by any level of government
The exempt sectors are not allowed to claim
any credit for the CENVAT or the service tax
paid on their inputs

Constitutional Provisions
on Centre-State Fiscal
Balance
Direct Tax Income Tax levied by the Centre
Tax

on manufacturing levied by Centre


(Central Excise)
Tax on sales levied by the State
(Sales Tax or State VAT)
Tax on inter-State sale & Declared Goods
Central Sales Tax - Central law but collected
& retained by the State
Tax on services levied by the Centre
(Service Tax)
Tax on Exports & Imports levied by the Centre
(Customs Duty & Export Duty)

Goods & Services Tax


(GST)
Under

this model both goods and services


would be subject to concurrent taxation by
the Centre and the States.

Inter-state

services for which the place of


destination would be difficult to determine.
The State tax on these services may be
collected
by
the
Centre,
and
then
apportioned among the States in some
manner

Goods & Services Tax


(GST)
(1) This will be a dual GST there will be Central GST
portion (CGST) and a State GST portion (SGST) eg. if
GST is 23%, CGST can be 12% & SGST 11% and so
on. There could also be multiple rates.
(2) GST will subsume Central Excise, State VAT and
Service Tax.
It will also subsume all cesses &
surcharges (by Centre & the States), Entry Tax in lieu
of Octroi, Entertainment tax levied & collected by the
State Government, etc. It will not subsume levies by
local self-Governments (Panchayats & Urban Local
Bodies), petroleum, etc. For liquor, tobacco, etc
States could impose an additional tax, over and
above the GST. Final view yet to be taken by the EC.

GST Basic Features


Contd

(4) Centre will give Input Tax Credit (ITC) only for CGST
and the State only for SGST. Cross utilisation of ITC
between CGST & SGST shall not be allowed.
(5) Centre will legislate, levy & administer the CGST
portion on its own and the States the SGST portion on
their own.
(6) To avoid deviations by the States, there shall be a
mechanism, wherein the rates and other relevant
parameters will be decided upon by the Centre & the
States. The rates can thereafter not be changed by
the Centre or any of the States, without approval of
the same mechanism. A Constitutional mechanism
will be introduced

Dual GST Other features:


There

would a single registration or


taxpayer identification number, based
on the Permanent Account Number
(PAN) for direct taxation. Three
additional digits would be added to
the current PAN to identify registration
for the Centre and State GSTs.

Dual GST Other features:


Procedures

for collection of Central


and State GSTs would be uniform.
There would be one common tax
return for both taxes, with one copy
given to the Central authority and the
other to the relevant State authority.

Dual GST Other features:


To

minimize the need for additional


administrative
resources
at
the
Centre, States would also assume the
responsibility for administering the
Central GST for dealers with gross
turnover below the current registration
threshold of Rs 1.5 crores under the
central Excise (CENVAT). They would
collect the Central GST from such
dealers on behalf of the Centre and
transfer the funds to the Centre.

GST Inter State


transactions
One

of the problem areas is inter-State


transactions and giving ITC across
States.
The entire input tax paid in the
preceding transactions will have to be
paid by the origin State to the
destination State.
An
IT
based
clearing
house
mechanism is to be evolved.

GST Way Forward


GST - Coverage
CST
TO BE
PHASE
D OUT

Dual GST

GST Way Forward


GST - Coverage
Import
GST

Centr
al GST

IGST

State
GST

GST

Conclusion: The Draft GST Law is mix of Exiting VAT Laws


and Central Indirect Tax Laws. However some provisions are
too regressive in nature and defeat the entire purpose of
GST. disallowing ITC if the seller has not paid the GST is not
correct. However Draft has tried to put few things in order.

Further Refund provisions need be modified as No refunds for


excess Carry Forward of ITC other than export is not a
welcome move. In VAT laws such refund is allowed and this
will block huge cash in system. I feel this provision needs to
be looked upon.

The collection of Tax, Payment methods and other provisions


as stated in the laws seems to ease the business but actual
implementation needs to be seen. The effort and intention to
bring any statute or reform is always good but what need to
be seen that whether the same is implemented well.

However Rules will play important role to determine the


effective implementation of GST. GST will defiantly release
various bottlenecks of system and is progressive step in
Taxation Reforms

GST

Thank You