GOODS AND SERVICE TAX & HOW ITS

EFFECT ON STATE GOVERNMENT

REVENUE.

What is GST? ‘G’ – Goods ‘S’ – Services ‘T’ – TaxGST is a tax on goods and services with comprehensive and continuous

chain of setoff benefits from the Producer’s point and Service provider’s point up to the retailer level.

Under GST structure, all different stages of production and distribution can be interpreted as a mere tax pass through and the tax essentially sticks on final consumption within the taxing jurisdiction.

Currently, a manufacturer needs to pay tax when a finished product moves out from the factory, and it is again taxed at the retail outlet when sold. The taxes are levied at the multiple stages such as CENVAT, Central sales tax, State Sales Tax, Octroi, etc. will be replaced by GST to be introduced at Central and State level.

Continued…….

INTRODUCTION OF GST

All goods and services, barring a few exceptions, will be brought into the GST base. There will be no distinction between goods and services.

Under GST, the taxation burden will be divided equitably between manufacturing and services, through a lower tax rate by increasing the tax base and minimizing exemptions.

Proposed Tax Structure in India

Tax Structure

Direct Tax

Income Tax

Wealth Tax

Indirect Tax = GST (Except customs)

Intra-

stateCGST

(Central)

SGST (State)

Inter State

IGST (Central

)

GST TO UNIFY INDIRECT TAXES

REGIMEThe Goods and Services Tax (GST) is potentially a game-changing indirect tax reform. Apart from simplifying the current indirect tax structure, GST should help create ‘One’ India by eliminating geographical fragmentation.

While short-term macroeconomic implications of GST would be mixed, longer-term implementation should lift the growth and enable greater general government fiscal consolidation, said the report, India Goods and Services Tax: Making “One” India.

India needs GST to get rid of the problems of indirect taxes. As multiple taxes like CENVAT, central sales tax, state sales tax, octroi, etc. will not exist and will be replaced by GST, improve tax compliance.

The complexity in determining nature of transactions, the inability of state to levy tax on service, lack of uniformity in provision and rates, complexities in administration, all could be withdrawn to an extent with the implementation of GST.

More than 150 countries have adopted GST as it has the potential to raise revenue with more transparency and neutrality.

Why do we need GST

Current Problems The existing tax regime is

married by significant disadvantages:

As the business process have evolved, the existing lines between the state list and the central list have started to blur, leading to double taxation and extensive litigation.

The central and state taxes are not fungible against each other, nor are the state taxes fungible inter-se, leading to a cascading effect.

While the state laws were conceptualized so as to have uniform application, over a period of time with various amendments made by respective governments, each state’s law now has to be implemented and interpreted separately, resulting in a multiplicity of a compliance requirements.

The current tax regime is an origin based taxation system, as opposed to the destination-based system prevalent the world over, leading to significant disparities in revenue distribution to various states .

The situation have led many to move towards a unified GST/VAT model as is followed by Canada, Australia and the EU. However, considering that India has a federal structure, an Indian flavor of GST has been proposed- the dual GST .

Under the contemplated tax regime, the central and state government would be empowered to currently levy GST on both goods and services . The GST to be levied by the central government and state government would be called central GST (CGST) and state GST (SGST), respectively.

GST AS A SOLUTION

The introduction of GST would not only lead to the simplicity of tax regime, but would help remove its inherent defects. Some of the critical flaws like multiplicity of laws and Taxes, the cascading effect of taxes, the non-fungibility of credits between goods and services, the possibility for taxpayers to shift their base only to take advantage of a low tax regime, among other factors, would be addressed in due course by this new system. GST would result in a widening of the tax base, as well as increasing tax compliance and revenue collection.

In the case of inter- state supplies (that is , supplies from one state to another), an integrated goods and service tax ‘(IGST) would be

applicable.

PROPOSED GST STRUCTURE

STRUCTURE OF GSTIn India, there are three types of GST.

•CGST, Central Goods and Service Tax :- 1. CGST means Central Goods and Service Tax, one of the three categories under Goods and Service Tax (CGST, IGST and SGST) with a concept of one tax one nation. CGST falls under Central Goods and Service Tax Act 2016.

2. For easy understanding, when CGST is being introduced, the present central taxes of Central Excise Duty, Central Sales Tax CST, Service Tax, Additional excise duties, excise duty levied under the medical and toiletries preparation Act, CVD (Additional Customs duty – Countervailing Duty), SAD (Special Additional Duty of customs) surcharges and cesses are subsumed.

3. CGST is charged on the movement of goods and services of standard commodities and services which can be amended time to time by a separate body. The revenue collected under CGST is for Centre. However, input tax credit on CGST is given to states and such input tax could be utilized only against the payment of Central GST.

• SGST, State Goods and Service Tax :-SGST means State Goods and Service Tax, one of the three categories under Goods and Service Tax (CGST, IGST and SGST) with a concept of one tax one nation. SGST falls under State Goods and Service Tax Act 2016. For easy understanding, when SGST is being introduced, the present state taxes of State Sales Tax, VAT, Luxury Tax, Entertainment tax (unless it is levied by the local bodies), Taxes on lottery, betting and gambling. The revenue collected under SGST is for State Government.• IGST, Integrated Goods and Service Tax :- IGST means Integrated Goods and Service Tax with a concept of one tax one nation. IGST falls under Integrated Goods and Service Tax Act 2016. IGST is charged when movement of goods and services from one state to another.

For example, if goods are moved from Tamil Nadu to Kerala, IGST is levied on such goods. The revenue out of IGST is shared by state government and central government as per the rates fixed by the authorities.  As per GST Law Under the GST regime, an Integrated GST (IGST) would be levied and collected by the Centre on inter-State supply of goods and services.  

REGISTRATION AND RETURN Under GST Registration, It Is Likely

To Be Linked With Existing Pan. The New Business Identification

Number Was Likely To Be The 10-digit Alphanumeric Pan, In Addition To Two Digits For State Code And One Or Two Check Numbers For Disallowing Fake Numbers. The Total Number Of Digits In The New Number Was Likely To Be 13-15.

PAN mandatory to obtain registration except for non-resident person

State based registrations; concept of centralized registration done away with.

GST REGISTRATION PROCESS

RETURNS UNDER GST THE TAXPAYER WOULD NEED TO SUBMIT PERIODICAL

RETURNS TO BOTH THE CENTRAL GST AUTHORITY AND TO THE CONCERNED STATE GST AUTHORITIES.

COMMAN STANDARDIZED RETURN FOR ALL TAXES (with different account heads for CGST, SGST IGST) CAN COME INTO PICTURE.

COMMAN STANDARDIZED CHALLANS FOR ALL TAXES (with different account heads for CGST, SGST IGST) CAN COME INTO PICTURE.

There shall be levied a tax called the Central/State Goods and Services

Tax (CGST/SGST) on all intra-State supplies of goods and/or services on the value determined under section 15.

The rates as may be notified by the Central/State Government in this behalf, but not exceeding fourteen percent, on the recommendation of the Council and collected in such manner as may be prescribed.

The CGST/SGST shall be paid by every taxable person in accordance with the provisions of this Act.

The Central or a State Government may, on the recommendation of the Council, by notification, specify categories of supply of goods and/or services the tax on which is payable on reverse charge basis.

Levy of Tax

And the tax thereon shall be paid by the

recipient of such goods and/or services. The Central or a State Government may, on the

recommendation of the Council, by notification, specify categories of services the tax on which shall be paid by the electronic commerce operator.

GST

Alcohol, tobacco, petroleum products are likely to be out of the GST regime.

Tax on items containing Alcohol: Alcoholic beverages would be kept out of the purview of GST. Sales Tax/VAT could be continued to be levied on alcoholic beverages as per the existing practice. In case it has been made VA table by some States, there is no objection to that. Excise Duty, which is presently levied by the States may not also be affected.

Tax on Petroleum Products:  Petroleum and petroleum products have also been constitutionally brought under the GST. However, it has also been provided that petroleum and petroleum products shall not be subject to the levy of GST till notified at a future date on the recommendation of the GST Council.

Download Source- www.taxguru.in

Exemption of Goods and Services

Tax on Tobacco products: Tobacco products would be subjected to GST with ITC. Centre may be allowed to levy excise duty on tobacco products over and above GST with ITC.

Taxation of Services: As indicated earlier, both the Centre and the States will have concurrent power to levy tax on goods and services.

In the GST regime, for any intra-state

supply, taxes to be paid are the Central GST (CGST, going into the account of the Central Government) and the State GST (SGST, going into the account of the concerned State Government).

For any inter-state supply, tax to be paid is Integrated GST (IGST) which will have components of both CGST and SGST.

Payments to be made in GST

GST TAXES PAID BY YOU

We all will pay GST on every product or service we buy. Since all indirect taxes levied by the States and the Centre will be

merged into one GST, we would exactly know how much tax we pay which at present is difficult to understand.

No distinction would be made between imported or Indian goods and they would be taxed at the same rate.

The sellers or service providers collect the tax from their customer.

Through debit of Credit Ledger of the taxpayer maintained on the Common Portal- ONLY Tax can be paid.

Interest, Penalty and Fees cannot be paid by debit in the credit ledger. 

Tax payers shall be allowed to take credit of taxes paid on inputs (input tax credit) and utilize the same for payment of output tax.

How payment can be made

Electronically generated challan from GSTN Common Portal in all modes of payment and no use of manually prepared challan .

Convenience of making payment online. Faster remittance of tax revenue to the

Government Account.

Features of GST payment features

General Provisions Registered person entitled to credit of tax

charged on goods / services used / intended to be used for business (nexus), irrespective of place of supply.

Restrictions on input tax credits (similar to current regime) no credit on inputs/ input services used for private or personal Consumption.

Credit available in respect of inputs / capital goods directly sent to job-worker subject to conditions, however credit not available in respect of input services used by job-worker.

No provision for adjustment of tax in case of bad debts.

Credit to be availed within one year from date of invoice; subject to earlier of filing of annual return (31st December) or return for month of September (20th October) following end of financial year.

INPUT TAX CREDIT

Claim of Input Tax Credit ('ITC') Input tax credit to be allowed basis electronic ledger. Every taxable person to upload details of all inward & outward

supplies electronically. Provisional entitlement of tax credit basis self-assessment. Matching of ITC claim based on inward supplies with corresponding

outward supplies. Recipient liable to pay tax if miss-match arises; in month of

communication of such miss-match. Upon rectification by supplier, output tax liability of recipient reduced

to extent of above payment. Matching of output tax liability reduction claim of supplier with

corresponding reduction of input tax credit by recipient.Proposed Flow of ITC Credit-ITC credit of SGST is not available for CGST or vice-a-versa. IGST Input

SGST InputCGST Input

IGST OutputSGST

OutputCGST

Output

INPUT TAX CREDIT

GST REFUND

Refund of unutilized input tax credits allowed in cases where: goods / services exported outside India or; Inverted duty structure.

Refund application can be filed within two years of the relevant date; time limit not applicable in respect of deposits made under protest.

In case of multi state operations, application to be filed in respective states; instead of single application as done presently.

Provision to withhold or deduct refund claim in case of non-filing of return or pending tax demand but not stayed by any court or appellate authority.

To provide greater authority to states in tax collection, this bill amends the constitution to provide the same.

Parliament and state legislatures will have concurrent powers to make laws on GST.

Only Centre may levy & collection of IGST on interstate supply of goods and services, and imports.

Alcohol for human consumption has been exempted from GST. Parliament may, by law, provide compensation to states for any loss of revenue up to a period of 5 years.

Since it is an constitution amendment bill, The govt. requires the support of 2/3rd of the members in both the houses (Lok Shaba and Raja Shaba ) of the parliament.

WHAT IS ROLE OF STATE IN GST

HIGHLIGHT OF THE BILLS

Key Features contd. Goods and Services Tax Council (GSTC) - proposed Article 279A

To be constituted by the President within 60 days from the coming into force of the Constitutional Amendments. Consists of Union FM & Union MOS (Rev). Consists of all State Ministers of Finance. Quorum is 50% of total members. Decisions by majority of 75% of weighted votes of members present & voting. 1/3rd weighted votes for Centre & 2/3rd for all States together.

GST COUNCIL STATE REPORT

1 Goods and service tax is consumption based tax. It means that the state GST (SGST) will accrue to the state in which the goods and service are consumed rather than where they originated.2 Hence the states which have large number of consumer( Delhi , up , Bihar , west Bengal , etc. ) are likely to gain from GST , while the states which have high production but low consumption would loose.3 The states which are mainly the producing states (like Tamil Nadu, Maharashtra, Gujarat) may lose some revenue because they presently get 2% CST on the interstate sale of goods manufactured in their state but sold in other states, which would not be available to them.4 Hence, there would not be much loss of revenue to any state.Further, the Central Government has promised to compensate the state for any loss of revenue on account of GST.

LOSS OF STATE REVENUE

Central Gov

State Government

1 The states currently don’t have the power to tax services. After GST comes into the picture, the state governments will also get a share from the taxes you pay while eating in restaurants or while staying in a hotel.

2 GST will reduce tax evasion. A lot of people previously avoiding to pay taxes will now have an incentive to sell their products with an invoice. As a result of this, the tax collection will rise. 3 Although tax on exported products is now not available, let us not forget that states now have the power to tax goods which are imported into the state. This going to be beneficial for the net importing states, and will help to compensate the revenue loss for the overall exporter states.4 The fact that GST is based on consumption is good because it would ensure that states with higher population get more taxes. In the present system, Gujarat gets more taxes which enables the government to provide more services to encourage even more investments. However, Bihar gets less taxes because of which they can’t provide enough infrastructure to encourage investments.

WHAT REASONS GST NOT RESULT INTO TAX LOSS FOR STATES

Year 2016

Draft Model GST law released for discussion on 14 June 2016

Raja Shaba approved bill (August 2016)

Amendments ratified by Lok Shaba (August 2016)

President gave assent to the bill in Sept 2016

Creation of GST council in Sept 2016

1 Producing state governments (Tamilnadu , Karnataka, Maharashtra and Gujarat) will lose revenue to the extent of 25–30% while consuming state governments will get revenue boost to similar extent. However since center will compensate for 5 years and Tax:GDP ratio would have improved by then, states will not see any significant difference. Although states would share tax revenue on goods with the center , they would be getting revenue from taxing services which is growing very fast. Also since GST rates would be revenue neutral no net gain or loss in revenue is expected.

HOW CENTRAL GOVERNMENT COMPENSATE STATE GOVE TAX LOSS

Mahara

shtra

Andhra Prad

esh

Uttar Prad

esh

Tamil N

adu

Karnata

ka

Gujarat

West Ben

gal

Rajasth

anKera

la

Haryan

a

Madhya

Pradesh

Punjab

Chattisga

rh

Jharkhan

dOdish

aBihar

Jammu &

kash

mirAssa

m

Uttarakh

and

Himach

al Prad

esh

North Ea

st0

1000

2000

3000

4000

5000 STATE WISE TAX COLLECTION (RS.BILLIONS)

Column1

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