Government issued Draft Model GST Law

The Empowered committee of State Finance Ministers has today released the much awaited model GST law June, 2016 for public debate. The new law has two Acts:-

1. Goods and Services Tax Act’ 2016
2. Integrated Goods and Services Tax Act’ 2016

The Goods and Service Tax Act’ 2016 which has 190 days document containing 25 Chapters, 162 Sections, 4 Schedules along with GST Valuation Rules’ 2016 and runs into 162 pages. While the Integrated Goods and Services Tax Act’ 2016 has got 11 Chapters, 33 Sections and runs into 27 pages.

There are number of other Rules and notifications which are soon to be placed for public debate.

To Download the Draft GST Law click here

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ICAI asked Suggestions on GST

The biggest tax reforms in the history of Independent India are taking its final shape as the Constitution (122nd Amendment) Bill relating to the Goods and Service Tax (GST) has been passed by the Lok Sabha. Multiplicity of taxes, varying rates, costly compliance and lower revenue to the public exchequer are some of the important reasons which have compelled the administrators to bring in an effective tax system which can address such issues. GST will integrate the State economies and boost overall growth. It would subsume Central Excise Duty, Service Tax, Central Sales Tax, State Value Added Tax (VAT), Entry Tax, Octroi and other State levies, and pave the way for formation of a national market.

Being a proactive Institute, it has been always an endeavor of the ICAI to assist the country’s Government, Regulators and citizens by communicating various concerns and suggestions. The implementation of GST will immensely expand our professional horizons and bring tremendous opportunities to the profession. On our part, we have offered the CBEC, our unconditional support in paving the way for its implementation. Due to its neutral image and credibility, it is privilege of this Institute that government has always been open to the suggestions of the ICAI in any tax related matters and tries to act upon the same to the maximum possible extent.

You are invited to offer your suggestions, comments and thoughts on the said bill to the ICAI by mailing it to CA. Atul Gupta, Chairman, Indirect Taxes Committee, (Member of the Goods and Services Tax Network (GSTN) Advisory Committee as nominated by GSTN Board ) at idtc@icai.in. 

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Good and Service Tax

Good and Service Tax (GST) is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level. It is the biggest tax reform in India to integrate state economy and boost overall growth. Government has been making all efforts to ensure that Bill to pass and implemented in April 2016.

GST is worldwide accepted system. France is the first nation to introduce and implement the GST. Some of the Nation which follow the GST are Canada, Australia, Hong Kong, New Zealand, Malaysia, Singapore etc.

Present System

This can be better explained through an example. Suppose you buy a soap for Rs.50 per piece, it includes Excise duty, VAT/CST, custom duty on imported material etc. So currently you will have to pay multiple taxes.

Like the food you buy at hotel will have VAT as well as service Tax. So reduce this cumbersome government has to Introduce the GST.

Model Of GST

---Central Government Level

---State Government Level

---Both, Dual GST

The significant features of dual GST recommended in India, in Conjunction with recommendation by Joint Working Group are as

·         There will be central GST to be administered by the Central Government and there will be state GST to be administrated by State Government.

·         Central GST will replace existing CENVAT & Service Tax and State GST will replace state VAT.

Major Impact of GST are:-

·         Reduction in business costs

-          Special scheme to alleviate cash flow problems

-          Credit offset mechanism

-          Can claim the input tax due based on the invoice produced.

·         Lead to more competitive pricing

·         Make our export more competitive as exports are to be zero rated

·         Increase Gross Domestic Products

·         Reduce shadow economy activities.

·         It is a tool manage the economy E.g.: tourist refund scheme is proposed as a means to boost the tourism industry and tourism spending in the country, exports are zero rated to make over goal more competitive globally.

·         Cash Flow Management and Financial Operation

·         IT System

·         Legal Contracts

·         Recording Keeping, Vendors/ Suppliers

Some Critics GST as regressive tax which has a more pronounced effect on lower incomes earners, that the tax consumers a higher proportion of their income, compared to those earning large incomes.

Sources: Various websites

 Please feel Free to Comment for any Mistake and Objection. Always looking forward for your Kind support.

Regards: Keshav Kumar KC

CA Final Student

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GST – Grow and Share Together

The much awaited Goods and Services Tax (‘GST’) now seems to be a reality as the broad contours are slightly visible.  The Finance Minister in his Budget speech made it clear he has all the intentions to implement GST from April 1, 2016.  Though, we have seen in the past (during VAT introduction days) that statements made by the Ministers and their actual implementation are always poles apart, it seems this time the Government has something ready in its hands.

I happened to meet a former senior CBEC Member during one of the Budget sessions and he informed the Government has already done a lot of work in relation to GST.  The most important ‘Place of Supply’ Rules have been drafted and GST legislation to an extent has also been finalized.  He was of the firm opinion that if political will exists, there is a good chance GST getting introduced from the above date.  His statement was both a matter of exhilaration and disappointment because on one side he excited me by disclosing that a lot of groundwork has been done but the same was caveated by mentioning the words ‘political will’.  We all know how important and crucial projects have got stalled in the past only because of political unwillingness.  Time will only unfurl whether we would see GST happening next year or not.

But definitely some steps in the Budget 2015 indicate the willingness to create a path for GST.  The rate of Service tax increased to14% that may eventually go up to 16% (if Swach Bharat Cess is introduced) is an indication to the service providers to get ready for at least that rate under the GST.  Though, the probability of GST rates more than 16% cannot be ruled out, there is definitely an indication now that the rate would at least be 16%.  The manufacturers are already paying at least 16% (12.5% excise duty and 4% VAT or 2% CST) and therefore, through this amendment the convergence of different rates seems to be happening.  Further, GST being a tax without exemptions, the Government has done some work on that front as well with removal of few exemptions.  So all in all, a good and fair move towards GST.

From a CEO or the CFO’s perspective, it looks like time has come to probably get some bit of understanding on how this new piece of legislation would unfurl things and its likely impact on the business operations.  Until now, not many people were looking at this seriously, but we feel there is no harm in getting some basic education on how GST is going to impact your company’s bottom line. 

The CFO/ CEO’s would also need to ascertain the tax impact on the entire value/supply chain and its potential impact on the product prices and bottom line.  Currently, there are multiple non-CENVATable taxes that organization's pay and those add to the prices of the finished products.  These include taxes like Octroi, Entry tax, CST, Luxury taxes etc.  Once GST subsumes all these taxes, there is going to be an immediate impact on the product price and the bottom line of your organization.  Consequently, a deep understanding of how these taxes would be subsumed and a careful monitoring of their impact on the costs of the business is important. 

A critical implication that arises out of the above is managing the cash flows resulting out of payment of taxes at each stage.  Currently taxes are not paid at each stage whereas under the GST, each leg of the transaction shall be taxed, resulting in cash flow issues.  This would also get heightened with the increase in the rates of GST vis-à-vis current rates of VAT and Service tax.

We need to understand GST shall be a transaction tax and consequently, each and every transaction has to be analyzed and thread-bear to figure out the tax implications.  Further, the current concepts of ‘sale of goods’ and ‘provision of service’ shall be completely replaced with the concept of ‘supply of goods and supply of service’.  The term ‘supply’ is a much wider term and means even if goods or services are not sold, they would still get taxed under GST by virtue of them being supplied.  Transactions relating to ‘stock transfers’ are proposed to be included in the ambit.

In addition to the transactional issues that would merit a deep-dive, there is another aspect requiring a significant overhauling and that is the IT set-up of your company relating to accounting and taxation.  GST would bring with itself plethora of compliances and if you operate in various states, it would mean maintaining documentation for all the states and effectively managing credit movements across the India.  Being dual in nature, each company would need two separate registrations, one with the Centre and the other with the State.  For service providers who only provide services and pay Service tax, this would mean added compliance since they would need to pay both CGST (Central GST) and SGST (State GST) and undertake compliances at both the levels. 

As per me, the other larger issue unrelated to tax requiring a well-designed change management strategy is the attitude of the staff and other stakeholders.  The current regime of taxation has been place for last 60 years and therefore any change unless embraced well within the organization can be quite catastrophic.  Proper education on the new provisions, their impact on the business & on the roles and responsibilities of the staff and how this change is going to make their life easy and more profitable has to be properly fed in the system and particularly into the staff’s minds.  More than hard issues, it is the softer issues that are going to be a key in ensuring a smooth transition for any organization.

I think in order to get away from the last minute rush and getting into a panic mode, the organizations should start sensitizing themselves on the broad nuances of GST and how it is likely to impact them. After all, only those who handle situations proactively are the ones who manage changes quite effectively.

I would like to end with a highly relevant quote by Jack Welch:

“An organization’s ability to learn and translate that learning into action rapidly, is the ultimate competitive advantage”

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Authored by Nimish Goel (www.nimishgoel.com), a chartered accountant with more than 12 years of experience and who’s passion is to coach and help young chartered accountants and aspiring students achieve the best in their life.  Nimish used to work with EY and PwC in India and has also worked with KPMG in Europe.  He now runs his own consulting company and runs a blog www.nimishgoel.com.  He can be reached for any queries and issues on his blog and on his Facebook page “Nimish Goel Blog”. 

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GST Bill gets Cabinet nod; likely in Parliament this session

The Union Cabinet on Wednesday approved Constitutional Amendment Bill for Goods & Services Tax (GST), paving the way for introduction of the Bill in the ongoing session of Parliament.

The Government intends to introduce GST from April 1, 2016, which will set the ball rolling for the legislative exercise for introduction of new indirect tax reforms.

The Bill needs to be approved by a two-third majority of the house. After this, it needs to be endorsed by at least half of the State Assemblies (15). Then the Centre will introduce separate legislation for GST. States, too, will be required to bring in legislations.

The Constitution does not provide for any concurrent taxation powers to the Centre as well as the States. This required the Constitution to be amended for conferring simultaneous power on Parliament as well as the State Legislatures, including every Union Territory with Legislature to make laws for levying goods and services tax on every transaction of supply of goods or services or both.

The new regime would replace a number of indirect taxes currently being levied by the Central and State Governments and is intended to remove cascading of taxes and provide a common national market for goods and services.

The proposed Central and State GST will be levied on all transactions involving supply of goods and services except those that are exempt or kept out of the purview of the goods and services tax.

Once the new tax system comes into place, there will be three indirect taxes apart from the customs duty (only on imported goods).

There will be a Central GST, which will subsume Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty (commonly known as Countervailing Duty or CVD), Special Additional Duty of Customs (SAD) and Central Surcharges and cesses.

Then there will be State GST. This will subsume State VAT/Sales Tax, entertainment tax (unless it is levied by the local bodies), Luxury Tax, Taxes on lottery, betting and gambling, tax on advertisements, State Cesses and Surcharges. The third one will be Integrated GST (IGST) on inter-State transactions of goods and services. There is an agreement on subsuming entry tax in GST. At the same time, petroleum products will be part of GST with ‘nil’ rate.

However, after initial three years, a call will be taken to continue or exclude it.

While alcohol will be out of GST, tobacco will be within its purview

The new Bill will also have provision of compensation for initial years on account of revenue loss due to introduction of GST.

There is also agreement on subsuming entry tax into GST. Finance Minister Arun Jaitley has already promised to pay ₹11,000 crore as compensation due to phasing out of Central Sales Tax

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GST Bill may come up in winter session of Parliament

GST Bill may come up in winter session of Parliament

 

The Bill will be taken up in the winter session of Parliament, says Union minister of state for finance J.D. Seelam

 

The goods and services tax (GST) Bill will be taken up in the winter session of Parliament, Union minister of state for finance J.D. Seelam said on Wednesday.

 

“There is near-consensus between the finance minister and the chairman of the empowered committee of states’ finance ministers. We can table it (the Bill) during the winter session,” Seelam told reporters on the sidelines of a Federation of Andhra Pradesh Chamber of Commerce and Industry (FAPCCI) event in Hyderabad.

 

India is trying to bring in legislation for a unified market by implementing a simple goods and services tax (GST).

The parliamentary standing committee on finance submitted its report on 7 August on the constitution amendment Bill, suggesting changes largely in line with the consensus reached between the central and state governments on the design of the tax.

 

“We are processing the recommendations forwarded by the standing committee,” Seelam said.

 

The original deadline for the implementation of the new tax regime was April 2010, but it missed several deadlines because of differences between the Centre and states over issues such as central sales tax compensation and the structure of the GST.

 

In July, the empowered committee elected Jammu and Kashmir finance minister Abdul Rahim Rather as its new chairman.

 

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GOODS AND SERVICE TAX- AN OVERVIEW

GOODS AND SERVICE TAX- AN OVERVIEW
BY ROHIT KAPOOR
Email: professionalsansaar2013@gmail.com

We all have heard about Goods & Service Tax. It is one of the many  legislations that are pending in the list of changes that we might expect in time to come. This tax is a consolidation of many indirect taxes, thereby drastically overhauling the system of Indirect Taxes in India.

Why Goods and service tax?

One of the main reasons of the introduction of GST is to avoid cascading effect of taxes in India. There are certain problems in the system that have not been solved till date. We shall talk about these problems now. The credit of Input VAT is available against the output VAT. In the same manner, the credit of Input excise/service tax is available for set off against the output liability of excise/service tax. However, the credit of VAT is not available against excise and vice versa. We all know that VAT is computed on a value which includes excise duty. In the same manner, CENVAT credit is allowed only for excise duty paid on inputs, and not on the VAT paid on the input raw material .This shows that  there is tax on tax.

An example to show how does it work??

The illustration shown below indicates, in terms of a hypothetical example with a manufacturer, one wholesaler and one retailer, how GST will work. Let us suppose that GST rate is 10%, with the manufacturer making value addition of Rs.30 on his purchases worth Rs.100 of input of goods and services used in the manufacturing process. The manufacturer will then pay net GST of Rs.3 after setting-off Rs.10 as GST paid on his inputs (i.e. Input Tax Credit) from gross GST of Rs.13.

The manufacturer sells the goods to the wholesaler. When the wholesaler sells the same goods after making value addition of (say), Rs.20, he pays net GST of only Rs.2, after setting-off of Input Tax Credit of Rs.13 from the gross GST of Rs.15 to the manufacturer.

Similarly, when a retailer sells the same goods after a value addition of (say) Rs.10, he pays net GST of only Re.1, after setting-off Rs.15 from his gross GST of Rs.16 paid to wholesaler. Thus, the manufacturer, wholesaler and retailer have to pay only Rs.6 (= Rs.3+Rs. 2+Re. 1) as GST on the value addition along the entire value chain from the producer to the retailer, after setting-off GST paid at the earlier stages. The overall burden of GST on the goods is thus much less. This is shown in the table below. The same illustration will hold in the case of final service provider as well.

Stage of supply chain	Purchase value of Input	Value addition	Value at which supply of goods and services made to next stage	Rate of GST	GST on output	Input Tax credit	Net GST= GST on output -Input tax credit
Manufacturer	100	30	130	10%	13	10	13-10 = 3
Wholesaler	130	20	150	10%	15	13	15-13 = 2
Retailer	150	10	160	10%	16	15	16-15 = 1

THE DUAL GST MODEL
See these abbreviations before understand them-
SGST- State GST, collected by the state Govt.

CGST- Central GST, collected by the Central Govt.

IGST –Integrated GST, collected by the Central Govt.

Now look at the chart given below

Transaction	New System	Old System	Comments
Sale within the state	SGCT CGST	VAT	Under the new system, a transaction of sale within the state shall have two taxes, SGST- which goes to the state; and CGST which goes to the centre.
Sale outside the state	IGST	CST	Under the new system, a transaction of interstate shall have only one type of tax, the IGST- which goes to the centre.

                                                   HOW GST OPERATES?

CGST and SGST rates have been assumed to be 8%.

Case1: Sale in one state, resale in the same state.
In the example illustrated below, goods are moving from Chandni Chowk to Gandhi Nagar. Since it is sale within the state, CGST and SGST would be levied. The collection goes to the Central and the State Govt. as below. Then the goods are resold from Gandhi Nagar to Sadar Bazaar. This is again within the state, so SGST and CGST would be levied. Sale price is increased so tax liability will also increase. In case of resale, the credit of input CGST and SGCT is claimed as shown; and the remaining taxes goes to the respective govt.

    Rate of IGST has been assumed to be 16 %.

Case2: Sale in one state, resale in another state.
In the example illustrated below, goods are moving from Chandni Chowk to Gandhi Nagar. Since it is sale within the state, CGST and SGST would be levied. The collection goes to the Central and the State Govt. as shown in diagram below. Later the goods are resold from Gandhi Nagar to Jaipur (Outside the state). Therefore IGST would be levied and the whole IGST goes to the central govt.

Against IGST, both input taxes are taken as credit though SGST being a state levy is not collected by the central government. This is the crux of GST. Since this amounts to loss to the central government, the state government compensates the central government by transferring the credit to central government.

Case3: Sale outside the state, resale in that state.

In this case, goods are moving from Delhi to Mumbai. Since it is an interstate sale, IGST would be levied. The collection goes to the central govt. Later the goods are resold from Mumbai to Pune (within the same state). Therefore CGST and SGST would be levied. 50% of the IGST can be set off against CGST and remaining 50 % of the IGST can be set off against SGST which is taken as credit. It is important to note that though IGST is not collected by the state govt., still its credit is claimed against SGST. Since this amounts to loss to the State government, the central government compensates the state government by transferring the credit to state government.

ADVANTAGE OF GST

The biggest benefit that will be witnessed with the introduction of the GST is that multiple taxes that currently exist will no longer remain in the picture. This means that taxes like octroi, CENVAT, central sales tax, state sales tax, entry tax, license fees, turnover tax etc will no longer be present and all that will be brought under the GST. Businesses thus will not have to deal with multiple taxes but will be able to undertake the tax compliance in an easy manner.

CONCLUSION -GST is expected to play a key role in bringing about more transparency into the tax system. Instead of fiscal concessions, concessions to select industries on grounds such as environmental protection etc. could be provided in a transparent manner through cash refunds or otherwise. While unified rate may be there, states may be allowed to charge rates most suitable to them such as on alcohol, petroleum products, etc. A very strong infrastructure network would be required to administer GST which would include facility for online payment of tax and e-filing of returns. The GST as a new levy could be a very effective tool and break. through in indirect tax reforms, provided it is made simple and assessee-friendly – not like the present tax system.

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What is GST?

GST - Summary
The empowered Committee of State Finance Ministers on Tuesday (10 Nov 2009) unveiled the contours of Proposed Goods and Service Tax (GST) by releasing a First Discussion Paper on Proposed GST.


Uncertainty continued to persist about whether the April 1, 2010, deadline for the roll out would bet met and Asim Dasgupta, West Bangal’s finance minister and pane chairman , admitted that attempts are still on to try and resolve differences among states.


Highlights of Discussion Paper on Proposed GST
GST will redistribute the burden of taxation equitably between manufacturing and services, bringing about a qualitative change in the tax system. It will broaden the tax base and lower tax rates. The distortions will be reduced fostering a common market across the country. The compliance cost will come down and trade & industry will become competitive leading to an
increase in exports and lower prices for domestic consumers.


PROPOSED GST MODEL
GST will have two components:
- Levied by the Centre (Central GST) :
�� Will be implemented through one statute for Central GST.
�� Paid into the account of the Centre.
�� Administration with the Centre.
- Levied by the States (State GST) :
�� Will be implemented through state-specific law, but basic features will not  change.
�� Paid into the account of respective states.
�� Administration with respective states.


RATES
There will be two rates for GST – a lower rate for necessary items and standard one for others.
• Special Rates for Precious metals.
• Services to have a single rate.
• Exact rates to be decided later.


THRESHOLD LIMIT
• Rs. 10 lakh gross annual turnover for state GST.
• Central GST at Rs. 1.5 Crore
• Service - High but not proposed


SALIENT POINTS
• There two taxes, state GST and central GST, will be treated separately.
• Input tax credit, or tax paid on inputs, will be allowed only in respect of IGST, central or state.
• Input tax in respect of central GST, for instance, cannot be set off against state GST.
• Will be applicable on all transactions of goods and services except exempt     ones, those outside GST and transactions below a threshold to keep smaller  traders out and for ease of administration.
• Uniform procedures for collection of both the components.
• Taxpayers to submit returns to both the central and state authorities.
• Each taxpayer will get a PAN-linked identification number for GST.
• Imports would attract both central and state GST.
• Cross-utilisation of credit between goods & services allowed within one vertical, central or state GST.


MAJOR TAXES THAT WOULD BE SUBSUMED.
Central 
• Central excise
• Additional excise
• Service tax
• Additional Customs duty
• Special additional duty on Customs
• Surcharges
• Cesses
State 

• VAT/Sales tax
• Entertainment tax, except those levied by municipal bodies
• Luxury tax
• Taxes on lottery, betting & gambling
• State cesses & surcharge on goods
• Entry tax that is not in lieu of octroi


MAJOR CONSTITUTIONAL CHANGES NEEDED
• State will have to get powers to tax services and imports.
• The Centre will need powers to tax on sale of goods.


BENEFIT OF GST
• There will not be any tax-on-tax, leading to lower tax liability.
• General lowering of costs will reduce the cost of goods & services.
• The high threshold will keep small traders out.


INTER-STATE GST
• There will be an inter-state GST, called IGST
• The tax will be levied by the Centre and will be sum of state and central GST.
• A scheme of transfer of credit will ensure uninterrupted input credit chain.

 

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