Some Issues Indirect Tax Ultimate GST - ICMAI

Some Issues – Indirect Tax – Ultimate GSTPresented – By Niranjan SwainPast Chairman EIRC of ICAI,

Breaking News --------Taxation system in India wins the contestof 8th wonder of the world next to Taj

Love is a feeling , marriage is a contract andrelationships are work- Lori GordonGood Legislation is a feeling , business is acontract and all transactions are taxable- Indian Taxation system

ClaritySupport from Taxexperts &consultantsHarmonizing withGovt officialCompliance byAssesseeTax Act / Rules

MoNeY----I met money one day .I said , “ You are just a piece ofpaper------Money smiled and said , “ Of course I’m a piece of paperbut I haven’t seen a dustbin yet in my life”

Union Budget 2006 & 2007Budget 2006:“It is my sense that there is a largeconsensus that the country shouldmove towards a national level Goodsand Services Tax (GST) that should beshared between the Centre and theStates. I propose that we set April 1,2010 as the date for introducing GST.World over, goods and servicesattract the same rate of tax. That is thefoundation of a GST. People must getused to the idea of a GST.”

Union Budget 2006 & 2007Budget 2007:“I wish to record my deep appreciation ofthe spirit of cooperative federalismdisplayed by State Governmentsand especially their FinanceMinisters. At my request, theEmpowered Committee of StateFinance Ministers has agreed towork with the Central Governmentto prepare a roadmap forintroducing a national level Goodsand Services Tax (GST) with effectfrom April 1, 2010.”

Budget Speech of The present Finance Minister,Shri Pranab Mukherjee, has said"As tax collectors, we may draw comfort from the fact that wemanage to generate the targeted revenues. But there arequestions that beg an urgent response. First, are collection made in the most efficient manner and dothey potential ? Second, what is the hidden burden of taxes in the form ofcascading and double taxation ? Third, why is our tax structure so complex and prone todisputes and litigation ?These questions cannot be side stepped any longer as theyhave implication for the robustness and growth of the verybase that yields our tax revenues”The proposed GST can deliver on all these promises

Taxing Power of the Centre- Seventh Schedule to our ConstitutionList I, called “Union List” - Entries relevant to taxation provisions are as follows Entry No. 83 - Duties of customs including export duties. Entry No. 84 –Duties of excise on tobacco and other goods manufactured or producedin India except alcoholic liquors for human consumption, opium, narcoticdrugs, but including medicinal and toilet preparations containingalcoholic liquor, opium or narcotics. Entry No. 92A - Taxes on the Sale or purchases of goods in inter StateTrade or commerce other than newspapers, Entry No. 92B - Taxes on consignment of goods in interstate trade orcommerce. Entry No. 92C – Tax on services [Amendment passed by Parliament on15-1-2004, but not yet made effective]. Entry No. 97 - Any other matter not included in List II, List III and any taxnot mentioned in list II or list III. (These are called „Residual Powers‟.)

Taxing Power of the State & Centre- Seventh Schedule to our ConstitutionList II & III, called “State List & Concurrent List” List II – State List – Entry No. 51 - Excise duty on alcoholic liquors,opium and narcotics. Entry No. 52 - Tax on entry of goods into a localarea for consumption, use or sale therein(usually called Octroi). Entry No. 54 - Tax on sale or purchase of goodsother than newspapers except tax on interstatesale or purchase.List III - “concurrent list”, includes matters where both CentralGovernment and State Government can makelaws.

.Constitutional FrameworkUnion List Income TaxState List Taxes on lands and Custom Duty Excise Duty Corporation Tax Service tax Central Sales Tax Stamp duty in respect ofbills of exchange,cheques, promissorynotes, etc buildingsExcise duty on alcoholicliquor etcEntry taxSales TaxTollsLuxury TaxStamp duty in respect ofdocuments other thanthose specified in theprovisions of List IConcurrent List Stamp duties other thanduties or fees collectedby means of judicialstamps, but not includingrates of stamp dutyThe constant blurring of taxing jurisdiction betweenthe Centre and the States has necessitated multipleConstitutional challenges12

Nature of Indirect Taxes in IndiaTax / LeviesRelevant StatuteImposing AuthorityCustomsDutyCustoms Act, 1962Customs Tariff Act, 1975Federal Govt.Import / ExportMedian Rate : 24.42%Central Excise Act, 1944Excise Duty /Central Excise Tariff ActCenvatCenvat Credit Rules, 2004Taxable EventFederal Govt.Manufacture /Median Rate : 10.30% ProducxtionService TaxFinance Act ,1944Cenvat Credit Rules, 2004Federal Govt.Median Rate : 10.30%CSTCentral Sales Tax Act, 1956R &D CessResearch and Development Federal Govt.Cess Act, 1986Rate - 5%State Govt. Rate-2%service providedtobe providedInterstate Saleimport oftechnology

Nature of Indirect Taxes in IndiaTax / LeviesRelevant StatuteValue Added VAT Act of respectiveTaxState GovernmentSpecific provisions laiddown by StateGovernmentEntry TaxLocal LeviesCESSImposing AuthorityTaxable EventState Govts.Rates 4% & 12.5%Intra State SaleState Governmenton the entry ofgoodsSpecific provisions laidMunicipal or Localdown by StateAuthorityGovernmentManufactured biriOn rubber /coffeeUn-manufactured tobaccoNCCD /EC / S&HECAddl. duty of Excise onpan masalaSpecial duty of excise on motorspirit / HSD

Current Tax Cost in IndiaOctroi – 0.5 to 5%Interstate purchase(CST)ImportsCustoms DutyBasic – 10%CVD – 12%Ed. Cess – 3%Local purchaseVAT – 5%/12.5%Local purchaseVAT – 5%/12.5%DealerRetailer FactoryIntra-StateEx. Duty – 12%Edu. Cess – 3%VAT– 5%/12.5%Service ProviderServ. Tax – 12.36% Stock transfer(No tax)Toll ManufacturerInter-StateEx. Duty – 12%Edu. Cess – 3%CST – 2%VAT rate may range from 12.5-15% depending onthe StateGoods TransporterServ. Tax-12.36%OtherService ProviderServ. Tax – 12.36%Central LevyOtherService ProviderServ. Tax – 12.36%State Levy-Credit not fungible between State andCentre; resulting in a cascading impact oftaxes - Cumulative burden of IndirectTaxes in India – 28% (approx.)

.Current Taxes and CreditsAddnl. duty of CustomsExcise dutyService taxVAT (State Sales tax)Central Sales taxEntry taxOctroiExcise dutyService taxVAT (State Sales tax)No Credit16

Major Milestone in Indirect Tax Reforms.Year1974. 1986DevelopmentReport of L. K. Jha Committee - suggests VATIntroduction of a restricted VAT called MODVAT1992Recomnd. Dr. Chelliah Committee for VAT / GST1994Introduction of Service Tax1999Formation of Empowered Committee on State VATJan.2000Imple. of uniform floor tax rates (1%, 4%, 8% & 12%)Abolition of tax related incentives granted by StatesApr-03VAT Implemented in one StateSept.2004Recomnd. of Kelkar Committee. Cenevat Credit Rules2004 – Significant progress towards a Central VAT/ GST –Integration

.Major Milestones in Indirect Tax ReformsYearDevelopment2005 / 2006VAT Implemented in 21 States / 5 more StatesNov. 2007Reduction of CST to 3%. Report of JWG of EC forchangeover to GST2008Reduction in Excise Duty / CST to 2% & Model RoadMap for GSTNov. 2009Fist Discussion Paper on GSTDec. 2009Thirteenth Finance Commission Report – GSTJan-2010Comments of DoR on first discussion paper2010-11Discussion with states to bring consensus on different issuesBudget - 2011Levy of Excise Duty on 100 goods exempted earlier.Amendment to CENVAT Credit Rules 2004. Introductionof point of taxation Rules.Budget 2012Coverage of more items under Excise – 1% to 5%

.Major Milestones in Indirect Tax ReformsYearDevelopment2011The Constitution (115th Amendment) Bill, 20112013Standing Committee Recommendations, 20132014The Constitution (122nd Amendment) Bill, 2014

Why We need Goods and Service Taxes? Multiple taxes – ED, ST, VAT etc. Multiple rates / Rate war by States Cascading effect – No setoff for CST, ED,Customs Duty etc. Higher cost of administration Simplified Procedure – Uniform Rates, HSN,Exemption Lists, Common registration etc. Uniform definitions, self assessment Enhancement of Tax Base Seamless ITC Remove Geographical limitations. Integration with Global Trends - Cost,Efficiency & Administration Destination based taxation system.Both Centre & State will have power to levy

Proposed GST Model Dual Goods and Service Tax –JWC recommended &Acceptable toTFC subject to certain compliances) State and Centre have Concurrent Power to levy tax on Services Central GST(CGST)- Levied by the Centre & paid to the accountof Centre State GST(SGST)– Levied by the States & paid to the account ofStates Integrated Goods & Service Tax (IGST)– Would be Levied byCentre on all Inter sate TransactionsImplemented through multiple statutes(one for CGST and SGST statute for every State).Basic features of law such asChargeability, Definition of taxable event and taxable person,Measure of levy including valuation provisions,Basis of classification etc.would be uniform across these statutes as far as practicable.

Applicability of GST CGST & SGST would beapplicable to all transactionsof goods and services madefor a considerationExceptions Exemptedgoodsandservices, Goods which are outside thepurview of GST Transactions below thresholdlimits.

IGST- Central Govt:Levy of Integrated GST (IGST): Centre would levy and collect GST onsupplies in the course of inter-state trade or commerce.Apportionment of IGST: GST Council would also make recommendationsrelated to apportionment of IGST.Place of supply:GST council is to also make recommendations onformulation of the principles that govern the place of supply.Additional tax: Not to exceed 1%) on the supply of goods in the course ofinter-state trade or commerce would be levied and collected by thecentre. Directly assigned to the states from where the supply originates (2Years). Would not be a part of the Consolidated Fund of India (except for theamounts due to the union territories). Centre may exempt certain goods from its purview and formulateprinciples for the determination of place of origin related to supplyof goods.

Integrated Goods and Service Tax (IGST) Parliament will have exclusive power tomake laws in respect of goods and servicestax where supply of goods and services orboth take place in inter-state trade orcommerce. Appropriate provision to be incorporatedfor consignment or stock transfer of goods. Set-off benefit available.Rate for IGSTCGSTSGSTIGST

GST RatesJWG of ECNo rates specified in theDiscussion PaperState- GST Should be floor RateDebate is still continuingKelkar Task Force –Federal GST – 12%State GST - 8%Estimation of Tax BaseRs. in CrsSubtraction Method30,73,037Consumption Method- Tax Force37,43,077Consumption Method- NCAER30,77,953Shome Index Method27,82,809Revenue Method29,49,748Average31,25,325Task ForceRNR – CGST – 5%SGST-7%Export – Zero ratedComposition Scheme

Revenue Forgone ( Rs. in Crores).2009-10ParticularsRevenueForegoneCorporate TaxIncome TaxExcise DutyCustoms DutyTotalActual Forgoneto actual 0,543847,83272.01%

Proposed Rate structure – Latest developments Rate would be based on Revenue Considerations GST Council - Rates including floor rates with bands of GST; Any special rates for a specified period, to raise additionalresources during any natural calamity or disaster Expected GST rate (two rates) General goods standard rate Essential items to attract lower Lower rate for precious metals List of exempt goods Services to be taxed at a single

Proposed Rate structure – Latest developments Uniform Composition scheme: Upper limit of Rs.50 Lkahs & rate of tax at 0.5% with option forregistration. Threshold limit as follows: CGST (goods) – Rs.150 Lakhs CGST (services) – To be decided SGST (goods and services) – Rs.10 Lakhs