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“IMPLEMENTATION OF GST IN INDIA”
Bachelor of Commerce
FINANCIAL MARKETS
Semester V
(2015-2016)
Submitted by
SOWJANYA SAMPATHKUMAR
Roll No. 51
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INDEX
Sr. No. Particulars Page No.
1 Introduction to GST 1
2 Need for GST in India 3
3 Existing taxation system vs.GST 5
4 Application and functioning of GST 14
5 Process of implementation and
Roadmap
21
6 Hurdles of implementation 25
7 Features 28
8 Advantages 31
9 Disadvantages 36
10 Impact on the economy 37
11 Expectation from various other sectors 43
12 Status of implementation of GST 45
13 Conclusion 48
14 Bibliography 49
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Introduction to GST
GST (goods and service tax) is a comprehensive tax levy on
manufacture, sale and consumptionof goods and service at a national
level.
‘G’ – Goods
‘S’ – Services
‘T’ – Tax
GST is a tax on goods and services with value addition at each stage
having comprehensive and continuous chain of set-of benefits from the
producer’s/service provider’s point up to the retailer’s level where only
the final consumershould bear the tax.” Through a tax credit
mechanism, GST is collected on value-added goods and services at
each stage of sale or purchase in the supply chain.
GST is paid on the procurementof goods and services can be set off
against that payable on the supply of goods or services.But being the
last person in the supply chain, the end consumerhas to bear this tax
and so, in many respects,GST is like a last-point retail tax.
France was the first country to introduce GST in 1954. Worldwide,
Almost 150 countries have introduced GST in one or the
other form since now. Most of the countries have a unified GST system.
Brazil and Canada follow a dual system vis-à-vis India is going to
introduce. In China, GST applies only to goods and the provision of
repairs, replacement and processing services.
GST rates of some countries are given below:
4
Country Rate of GST
Australia 10%
France 19.6%
Canada 5%
Germany 19%
Japan 5%
Singapore 7%
New Zealand 15%
Basically, GST is a value added tax, levied at all points in the supply
chain with credit allowed for any tax paid on inputs acquired for use in
making the supply. It is indirect tax that brings most of the taxes imposed
on most goods and services,on manufacture, sale and consumptionof
goods and services,under a single domain at the national level. It would
apply to both goods and services in a comprehensive manner with
exemptions restricted to a minimum and it is payable at the final point of
consumption.
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Need for GST in India
Introduction of a GST to replace the existing multiple tax structures of
Centre and State taxes are not only desirable but imperative in the
emerging economic environment. Increasingly, services are used or
consumed in productionand distribution of goods and vice versa.
Separate taxation of goods and services oftenrequires splitting of
transaction values into value of goods and services for taxation, which
leads to greater complexities,administration and compliances costs.
Integration of various taxes into a GST system would make it possibleto
give full creditfor inputs taxes collected.GST,being a destination-based
consumptiontax based on VAT principle, would also greatly help in
removing economic distortions and will help in developmentof a
commonnational market.
The implementation of GST will help create a commonIndian market
and reduce the cascading effectof tax on the costof goods and
services.It will impact tax structure, tax incidence,tax computation,
credit utilization and reporting, leading to a complete overhaul of the
current indirect tax system.
GST will have a far-reaching impact on almost all aspects of business
operations in a country, including pricing of products and services;
supply chain optimization; IT, accounting and tax compliance systems.
GST is expected to be a critical reform in spurring growth in the
economy.When introduced, GST will not only make the tax system
simpler, but will also help in increased compliance,boosttax revenues,
reduce the tax outflow in the hands of the consumers and make exports
competitive.
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It is hoped that the new Government will set forth a roadmap of the GST
implementation in the upcoming Budget.The GST or the Goods and
Service Tax is a long pending indirect tax reform which India has been
waiting for, and which is hoped to iron out the wrinkles in the existing tax
system. This comprehensive tax policy is expected to be one of the most
important reforms in contributing to the India growth story.
GST was first introduced in India during 2007-08 budget sessions.On
17th
December2014,the current Union Cabinet ministry approved the
proposalfor introduction GST Constitutional AmendmentBill. On 19th
of
December2014,the bill was presented on GST in Lok sabha. The Bill
will be tabled and taken up for discussionduring the coming Budget
session.The current central governmentis very determined to
implementGST Constitutional AmendmentBill.
The introduction of the GST system is by far the mostimportant tax
reform in India. Consensus and coordination among states is required
for it to succeed. It will affectprices,business processesand
investments in all segments of the economy.It will act as a catalyst for
promoting manufacturing in the country, thereby, supporting the ‘Make in
India’ program of the Government.
The Government of India is proposing to replace the current complex
structure of multiple indirect taxes in favour of a comprehensive dual
Goods and Services Tax (GST) expected to be implemented from 1 April
2016.GST will be one of the most significant tax reforms in the fiscal
history of India.
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Existing taxation system vs. GST
Existing:
Tax is compulsorycontribution to state revenue, levied by the
government on workers' income and business profits,or added to the
costof some goods,services,and transactions.
 Direct Taxes:
These types of taxes are directly imposed & paid to Government of
India. There has been a steady rise in the net Direct Tax collections in
India over the years, which is healthy signal. Direct taxes, which are
imposed by the Government of India, are:
 Income Tax- Income tax, this tax is mostly known to everyone.
Every individual whose total income exceeds taxable limit has to
pay income tax based on prevailing rates applicable time to time.
By doing investment in certain scheme you can save Income Tax.
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For FY 2015-16 Income tax rates are:-
 Wealth tax- A wealth tax (also called a capital tax, equity tax,
or net worth tax) is a levy on the total value of personal assets,
including owner-occupied housing; cash, bank deposits, money
funds, and savings in insurance and pension plans; investment
in real estate and unincorporated businesses; and corporate
stock, financial securities, and personal trusts. Typically liabilities
(primarily mortgages and other loans) are deducted; hence it is
sometimes called a net wealth tax.
A wealth tax taxes the accumulated stock of purchasing power, in
contrast to income tax, which is a tax on the flow of assets.
 Capital Gains Tax- Capital Gain tax as name suggests it is tax on
gain in capital. If you sale property, shares, bonds & precious
material etc. and earn profit on it within predefined time frame
you are supposed to pay capital gain tax.
The capital gain is the difference between the money received
from selling the asset and the price paid for it.
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Capital gain tax is categorized into short-term gains and long-
term gains. The Long-term Capital Gains Tax is charged if the
capital assets are kept for more than certain period 1 year in case
of share and 3 years in case of property. Short-term Capital
Gains Tax is applicable if these assets are held for less than the
above-mentioned period.
 Indirect Taxes:
An indirect tax is a tax collected by an intermediary (such as a retail
store) from the person who bears the ultimate economic burden of the
tax (such as the consumer). The intermediary later files a tax return and
forwards the tax proceeds to government with the return. Some of the
indirect taxes imposed are:
 Sales Tax: Sales tax charged on the sales of movable goods.
Sale tax on Inter State sale is charged by Union Government,
while sales tax on intra-State sale (sale within State) (now termed
as VAT) is charged by State Government.
Sales can be broadly classified inthree categories.(a) Inter-State
Sale (b) Sale during import/export (c) Intra-State (i.e. within the
State) sale. State Government can impose sales tax only on sale
within the State.
CST is payable on inter-State sales is @ 2%, if C form is
obtained. Even if CST is charged by Union Government, the
revenue goes to State Government. State from which movement
of goods commences gets revenue. CST Act is administered by
State Government.
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 Service Tax: Most of the paid services you take you have to pay
service tax on those services. This tax is called service tax. Over
the past few years, service tax been expanded to cover new
services.
Few of the major service which comes under vicinity of service
tax are telephone, tour operator, architect, interior decorator,
advertising, beauty parlour, health centre, banking and financial
service, event management, maintenance service, consultancy
service.
Current rate of interest on service tax is 14%. This tax is passed
on to us by service provider.
 Value Added Tax: The Sales Tax is the most important source of
revenue of the state governments; every state has their
respective Sales Tax Act. The tax rates are also different for
respective states.
Tax imposed by Central government on sale of goods is called as
Sales tax same is called as Value added tax by state
government.VAT is additional to the price of goods and passed
on to us as buyer (end user). Around 220+ Items are covered
with VAT. VAT rates vary based on nature of item and state.
Government is planning to merge service tax and sales tax in form of
Goods service tax (GST).
 Custom duty & Octroi (On Goods): Custom Duty is a type of
indirect tax charged on goods imported into India. One has to pay
this duty, on goods that are imported from a foreign country into
India. This duty is often payable at the port of entry (like the
airport). This duty rate varies based on nature of items.
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Octroi is tax applicable on goods entering in to municipality or
any other jurisdiction for use, consumption or sale. In simple
terms one can call it as Entry Tax.
 Excise Duty: An excise or excise duty is a type of tax charged on
goods produced within the country. This is opposite to custom
duty which is charged on bringing goods from outside of country.
Another name of this tax is CENVAT (Central Value Added Tax).
If you are producer / manufacturer of goods or you hire labour to
manufacture goods you are liable to pay excise duty.
 Entertainment Tax: Tax is also applicable on Entertainment; this
tax is imposed bystate government on every financial transaction
that is related to entertainment such as movie tickets, major
commercial shows exhibition, broadcasting service, DTH service
and cable service.
(Indirect taxes)
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GST:
GST is a major indirect tax reform in India which takes VAT to its logical
conclusion. GST would avoid burden of multiple taxation (tax on tax)
with a cascading effect.GST seeks to rule out cascading tax effect.
Once it introduced, CST will also be removed.
The proposedmodelof GST and the rate-
A dual GST system is planned to be implemented in India as proposed
by the Empowered Committeeunder which the GST will be divided into
two parts:
 State Goods and Services Tax (SGST)
 Central Goods and Services Tax (CGST)
 Integrated Goods and Services Tax (IGST)
Both SGST and CGST will be levied on the taxable value of a
transaction. All goods and services, leaving aside a few, will be brought
into the GST and there will be no differencebetweengoods and
services.The GST system will combine Central excise duty, additional
excise duty, services tax, State VAT entertainment tax etc. under one
banner.
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The GST rate is expected to be around 14-16 per cent. Afterthe
combined GST rate is fixed, the States and the Centre will decide on the
SGST and CGST rates. At present, 10 per cent is levied on services and
the indirect taxes on most goods are around 20 per cent.
 Comparisonbetween the Existing system and GST:
Example: 1 (Comprehensive Comparison) (Assumed rates)
Comparisonbetween Multiple Indirect tax laws and proposed
one law
Particulars Without GST With GST
(Rs.)
Manufacture to
Wholesaler
Cost of Production 5,000.00 5,000.00
Add: Profit Margin 2,000.00 2,000.00
Manufacturer Price 7,000.00 7,000.00
Add: Excise Duty @ 12% 840.00 –
Total Value(a) 7,840.00 7,000.00
Add: VAT @ 12.5% 980.00 –
Add: CGST @ 12% – 840.00
Add: SGST @ 12% – 840.00
Invoice Value 8,820.00 8,680.00
Wholesaler to Retailer
COG to Wholesaler(a) 7,840.00 7,000.00
Add: Profit Margin@10% 784.00 700.00
Total Value(b) 8,624.00 7,700.00
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Add: VAT @ 12.5% 1,078.00 –
Add: CGST @ 12% – 924.00
Add: SGST @ 12% – 924.00
Invoice Value 9,702.00 9,548.00
Retailer to Consumer:
COG to Retailer (b) 8,624.00 7,700.00
Add: Profit Margin 862.40 770.00
Total Value(c) 9,486.40 8,470.00
Add: VAT @ 12.5% 1,185.80 –
Add: CGST @ 12% – 1,016.40
Add: SGST @ 12% – 1,016.40
Total Price to the Final
consumer
10,672.20 10,502.80
Cost saving to consumer – 169.40
% Cost Saving – 1.59
Indirect taxes that will be included under GST:
State taxes which will be subsumed in SGST-
 VAT/Sales Tax
 Entertainment Tax (unless it is levied by local bodies)
 Luxury Tax
 Taxes on lottery, betting and gambling.
 State cess and surcharges to the extent related to supply of goods and
services.
 Entry tax not on in lieu of octroi.
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Central Taxes which will be subsumed in CGST-
 Central Excise Duty.
 Additional Excise Duty.
 The Excise Duty levied under the medical and Toiletries Preparation Act
 Service Tax.
 Additional Customs Duty, commonly known as countervailing Duty
(CVD)
 Special Additional duty of customs(SAD)
 Education Cess
 Surcharges.
Taxes that may or may not be subsumed due to no consensus between
the Central and State Governments-
 Stamp Duty
 Vehicle Tax
 Electricity Duty
 Other Entry taxes and Octroi
 Entertainment Tax (levied by local bodies)
 Basic customs duty and safeguard duties on import of goods into India.
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Application and functioning of GST
In keeping with the federalstructure of India, it is proposed that GST be
levied concurrently by the Centre (CGST) and the States (SGST). It is
expected that the base and other essential designfeatures would be
commonbetween CGST and SGST,across SGSTs for the individual
States. Both CGST and SGST would be levied on the basis of the
destination principle.
Thus, exports would be zero-rated, and imports would attract the tax in
the same manner as domestic goodsand services.Inter-State supplies
within India would attract an Integrated GST (aggregate of CGST and
the SGST of the Destination State).
GST is a consumptionbased tax/levy. It is based on the “Destination
principle.” GST is applied on goods and services at the place where
final/actual consumption happens.
GST is collected on value-added goods and services at each stage of
sale or purchase in the supply chain. GST paid on the procurementof
goods and services can be set off against that payable on the supply of
goods or services. The manufacturer or wholesaler or retailer will pay
the applicable GST rate but will claim back through tax credit
mechanism.
But being the last personin the supply chain, the end consumer has to
bear this tax and so, in many respects,GST is like a last-point retail tax.
GST is going to be collected at point of Sale.
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The GST is an indirect tax which means that the tax is passed on till the
last stage wherein it is the customerof the goods and services who
bears the tax. This is the case even today for all indirect taxes but the
differenceunder the GST is that with streamlining of the multiple taxes
the final costto the customerwill come out to be lower on the elimination
of double charging in the system.
The current tax structure does not allow a business personto take tax
credits.There are lot of chances that double taxation takes place at
every step of supply chain. This may set to change with the
implementation of GST.
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So, how is GST Levied? GST will be levied on the place of consumption
of Goods and services.How does GST operate?
 Case 1: Sale in one state, resale in the same state.
In the example illustrated below, goods are moving from Mumbai
to Pune. Since it is a sale within a state, CGST and SGST will be
levied. The collectiongoes to the Central Government and the
State Government as pointed out in the diagram. Then the goods
are resold from Pune to Nagpur. This is again a sale within a
state, so CGST and SGST will be levied. Sale price is increased
so tax liability will also increase. In the case of resale, the credit
of input CGST and input SGST (Rs. 8) is claimed as shown; and
the remaining taxes go to the respective governments.
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 Case 2: Sale in one state, resale in another state.
In this case, goods are moving from Indore to Bhopal. Since it is
a sale within a state, CGST and SGST will be levied. The
collectiongoes to the Central Government and the State
Government as pointed out in the diagram. Later the goods are
resold from Bhopal to Lucknow (outside the state). Therefore,
IGST will be levied. Whole IGST goes to the central government.
Against IGST,both the input taxes are taken as credit. But we
see that SGST never went to the central government, still the
credit is claimed.This is the crux of GST. Since this amounts to a
loss to the Central Government, the state government
compensatesthe central governmentby transferring the credit to
the central government.
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 Case 3: Sale outside the state, resale in that state.
In this case, goods are moving from Delhi to Jaipur. Since it is an
interstate sale, IGST will be levied. The collectiongoes to the
Central Government. Later the goods are resold from Jaipur to
Jodhpur (within the state). Therefore, CGST and SGST will be
levied.
Against CGST and SGST,50% of the IGST, that is Rs. 8 is taken
as a credit. But we see that IGST never went to the state
government, still the credit is claimed against SGST.Since this
amounts to a loss to the State Government, the
Central government compensatesthe State government by
transferring the credit to the State government.
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It is proposedthat the CGST will subsume central excise duty (Cenvat),
service tax, and additional duties of customs at the Central level; and
value-added tax, central sales tax, entertainment tax, luxury tax, octroi,
lottery taxes, electricity duty, state surcharges related to supply of goods
and services and purchase tax at the state level.
Rate of GST:
There would be two-rate structure –a lower rate for necessary items and
items of basic importance and a standard rate for goods in general.
There will also be a special rate for precious metals and a list of
exempted items. For goods in general, government is considering
pegging the rate of GST from 20% to 23% that is well above the global
average rate of 16.4% for similar taxes, however below the revenue
neutral rate of 27%.
The combined GST rate is currently being discussed by the Centre and
the EC. The rate is expected to be in the range of 14-16 %. Once the
total GST rate is determined,the states and the Centre have to agree on
the CGST and SGST rates. Today, services are taxed at 10% and the
combined incidence of indirect taxes on most goods is around 20%.
Model of GST with example:
 The GST shall have two components:one levied by the Centre (referred
to as Central GST or CGST), and the other levied by the States (referred
to as State GST or SGST). Rates for Central GST and State GST would
be approved appropriately, reflecting revenue considerations and
acceptability.
 The CGST and the SGST would be applicable to all transactions of
goods and services made for a consideration except the exempted
goods and services.
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 Cross utilization of ITC both in case of Inputs and capital goods between
the CGST and the SGST would not be permitted except in the case of
inter-State supply of goods and services (i.e. IGST).
 The Centre and the States would have concurrent jurisdiction for the
entire value chain and for all taxpayers on the basis of thresholds
 For goods and services prescribed for the States and the Centre.
The prices of commoditiesare expected to come down in the long run as
dealers pass on the benefits of reduced tax incidence to consumers by
slashing the prices of goods.
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Process of implementation and Roadmap
The Constitution (One Hundred and Twenty-second Amendment)Bill,
2014 was introduced in the Lok Sabha by Finance Minister Arun
Jaitley on 19 December2014.The Bill was passed by the House on 6
May 2015, receiving 352 votes for and 37 against. All 37 no votes came
from members ofthe AIADMK.The Indian National Congress party
opposed the Bill and boycotted the vote, its members leaving the House
before voting began. Although the BJD and the CPI(M) had previously
opposed the Bill, they cast votes in favour. The Government attempted
to move the Bill for considerationin the Rajya Sabha on 11 May 2015,
however, members of the Oppositionrepeatedlystalled the proceedings
of the House. In order to appease the Opposition's demand for further
scrutiny of the Bill, Jaitley moved a motion to referthe Bill to a Select
Committee.The 21 memberCommittee is expected to give its report by
the end of the Monsoon session.
In 2000,the Vajpayee Government started discussionon GST by setting
up an empowered committee.The committee was headed by Asim
Dasgupta, (Finance Minister,Government of WestBengal). It was given
the task of designing the GST modeland overseeing the IT back-end
preparednessforits rollout. It is consideredto be a major improvement
over the pre-existing central excise duty at the national level and the
sales tax system at the state level, the new tax will be a further
significant breakthrough and the next logical step towards a
comprehensive indirecttax reform in the country. The Kelkar Task Force
on implementation of the FRBM Act, 2003 had pointed out that although
the indirect tax policy in India has been steadily progressing in the
direction of VAT principle since 1986,the existing system of taxation of
goods and services still suffers from many problems and had suggested
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a comprehensive Goods and Services Tax (GST) based on VAT
principle. GST system is targeted to be a simple,transparent and
efficientsystem of indirect taxation as has been adopted by over 130
countries around the world. This involves taxation of goods and services
in an integrated manner as the blurring of line of demarcation between
goods and services has made separate taxation of goods and services
untenable. Introduction of an Goods and Services Tax (GST) to replace
the existing multiple tax structures of Centre and State taxes is not only
desirable but imperative in the emerging economic environment.
Increasingly, services are used or consumed in production and
distribution of goods and vice versa. Separate taxation of goods and
services oftenrequires splitting of transactions value into value of goods
and services for taxation, which leads to greater complexities,
administration and compliances costs.Integration of various Central and
State taxes into a GST system would make it possibleto give full credit
for inputs taxes collected.GST,being a destination-based consumption
tax based on VAT principle, would also greatly help in removing
economic distortions caused by presentcomplextax structure and will
help in developmentof a commonnational market. A proposalto
introduce a national level Goods and Services Tax (GST) by April 1,
2010 was first mooted in the BudgetSpeechfor the financial year 2006-
07. Since the proposalinvolved reform/restructuring of not only indirect
taxes levied by the Centre but also the States, the responsibilityof
preparing a Designand Road Map for the implementation of GST was
assigned to the Empowered Committeeof State Finance Ministers (EC).
In April, 2008,the EC a report to the titled “A Model and Roadmap for
Goods and Services Tax (GST) in India” containing broad
recommendations aboutthe structure and designof GST.
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In response to the report, the Department of Revenue made some
suggestions to be incorporated in the design and structure of proposed
GST. Based on inputs from GOI and States, The EC released its First
DiscussionPaper on Goods and Services Tax in India on the 10th of
November, 2009 with the objective of generating a debate and obtaining
inputs from all stakeholders. A dual GST module for the country has
been proposed by the EC. This dual GST modelhas been accepted by
centre. Under this modelGST have two components viz. the Central
GST to be levied and collected bythe Centre and the State GST to be
levied and collected by the respective States. Central Excise duty,
additional excise duty, Service Tax, and additional duty of customs
(equivalent to excise), State VAT,entertainment tax, taxes on lotteries,
betting and gambling and entry tax (not levied by local bodies)would be
subsumed within GST. In order to take the GST related work further, a
Joint Working Group consisting of officers from Central as well as State
Government was constituted. This was further trifurcated into three Sub-
Working Groups to work separately on draft legislations required for
GST, process/formsto be followed in GST regime and IT infrastructure
developmentneeded for smoothfunctioning of proposedGST.In
addition, an Empowered Group fordevelopmentof IT Systems required
for Goods and Services Tax regime has been set up under the
chairmanship of Dr. Nandan Nilekani. A draft of the Constitutional
AmendmentBill has been prepared and has beensent to the EC for
obtaining views of the States.
The Goods and Service Tax Bill or GST Bill, officially known as The
Constitution (122nd Amendment)Bill, 2014,would be a Value added
Tax (VAT) to be implemented in India, from April 2016.
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.
 Suggestions,in the Reportto be submitted by the Select
Committee,will be discussed and consensus reached before
Rajya Sabha passes the Bill with two-third majority.
 The Bill thereafter will be needed to be ratified by minimum of 15
States in their respective assembliesbeforethe Presidentcan give
its assent for its enactment.
 GST Council will be formed within 60 days of the enactment of the
Bill.
 GST Legislationand Place of Supply Rules will be framed and put
in the public domain for comments.
 GST Network, an IT backbone of GST, which will facilitate online
registration, tax payment and return filing will be launched.
 States will frame their respective GST Legislations to enable them
to implementGST. It will be in line with the Central GST
Legislation.
27
Hurdles of implementation
Before it can be introduced, the Centre and states have to sort out
issues like agreement on GST rates, constitutional amendments
empowering states to tax services,taxation on inter-state transactions of
goods and services, drafting of CGST and SGST laws, consultation with
all stakeholders including trade and industry associations before
finalisation, administrative preparednessto implement the new tax
regime and resolution of all other issues under discussion.
Challenges for implementing Goods & Services Tax system:
 The bill is yet to be tabled and passed in the Parliament.
 To implementthe bill (if cleared by the Parliament) there has to be
lot changes at administration level, InformationTechnology
integration has to happen, sound IT infrastructure is needed,the
state governments has to be compensatedforthe loss of revenues
(if any) and many more.
 It is really required that all the states implement the GST together
and that too at the same rates. Otherwise, it will be really
cumbersomeforbusinesses to complywith the provisions of the
law. Further, GST will be very advantageous if the rates are same,
because in that case taxes will not be a factor in investment
location decisions,and people will be able to focus on profitability.
 For smooth functioning, it is important that the GST clearly sets out
the taxable event. Presently, the CENVAT credit rules, the Point of
Taxation Rules are amended/introduced for this purpose only.
However, the rules should be more refined and free from
ambiguity.
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 The GST is a destination based tax, not the origin one. In such
circumstances,it should be clearly identifiable as to where the
goods are going. This shall be difficult in case of services,because
it is not easy to identify where a service is provided,thus this
should be properly dealt with.
 More awareness about GST and its advantages have to be made,
and professionals really have to take the onus to assume this
responsibility.
 GST, being a consumption-basedtax, states with higher
consumptionof goods and services will have better revenues. So,
the co-operationfrom state governments would be one of the key
factors for the successfulimplementation of GST
 Assuming GST at 20%,services would see a rise in tax rates
while manufactured consumergoods may see a fall. The two
are likely to offseteach other resulting in a limited net impact on
inflation based on the consumerprice index.
 But actual impact on inflation can’t be known with certainty as
much depends on how the change in tax rates is passed on to
consumers and what the actual GST rate is.
 If there is a partial pass through of higher taxes, impact could be
limited, but if GST rate is higher than 18-22%,effecton inflation
can be more than anticipated
 2 levels of GST—state and Centre—means multiple compliances.
 This could mean not just stricter compliance and audit but also an
increase in costof compliance.
 Globally, the norm is a single, central GST. The jury is still out
whether the central and state governments will function on a
commonplatform due to existing cultural and operational
differences.
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 The GST credit flow requires each vendor to input details of
invoices issued containing details of the customer,for the next in
line (i.e. the customer)to receive credit. If vendors aren’t able to
upload invoice details in a timely manner, then credit blockages
could happen.
Since GST replaces many cascading taxes, the commonman may
benefitafter implementing it. But it all depends on ‘what rate the GST is
going to be fixed at?’ Also,Small Traders (based on Annual Business
turnover) may be exempted from it.
30
Features
 The proposedArticle 246A intends to grant concurrent powers to
the Union and State legislatures to make laws with respectto GST.
The power to make laws in respectof supplies in the course of
inter-State trade or commercewill be vested only in the Union
government. States will have the right to levy GST on intra-State
transactions including on services.
 Centre will levy IGST on inter-State supply of goods and services.
On intra-State supply of goods and services,Centre to levy CGST
and States shall levy SGST. Importof goods will be subjectto
basic customs duty and IGST.
 GST defined as any tax on supply of goods and services other
than alcohol for human consumption.
 Central taxes like, Central Excise duty, Additional Excise duty,
Service tax, Additional Custom duty and Special Additional duty
and State level taxes like, VAT or sales tax, Central Sales tax,
Entertainment tax, Entry tax, Purchase tax, Luxury tax and Octroi
will subsume in GST.
 Petroleum and petroleum products shall be subject to the GST on
a date to be notified by the GST Council.
 Alcoholfor human consumptionwill be out of GST, States to
continue to levy taxes on alcohol. Items of tobacco productwill be
subjectto separate excise duty by the centre over and above GST.
 1% origin based additional tax to be levied on inter-State supply of
goods will be non-creditable in GST chain. This origin based non-
creditable tax on supply of goods will be hugely distortionary and
should be revisited.
31
 Provision for removing imposition of entry tax / Octroi across India.
 Entertainment tax, imposed byStates on movie, theatre, etc will be
subsumed in GST, but taxes on entertainment at panchayat,
municipality or district level to continue.
 GST may be levied on the sale of newspapers and advertisements
and this would give the government’s access to substantial
incremental revenues.
 Stamp duties, typically imposed on legal agreements by the state,
will continue to be levied by the States.
 Article 279 provides the constitution of GST Council by the
presidentwithin 60 days from the date of the passing of the Bill
and also provides for the appointment of members of the GST
Council and its compositionand powers to make recommendation.
 Administration of GST will be the responsibilityof the GST Council,
which will be the apex policy making body for GST. Members of
GST Council comprisedof the Central and State ministers in
charge of the finance portfolio.In the GST Council Centre will have
one-third vote and all States combined to have two-third vote.
Quorum for GST Council is 50% of total members and for majority
of Council decisions 75% of the weighted votes of the members
presentand voting.
 The power to make laws in respectof supplies in the course of
inter-State trade or commercewill be vested only in the Union
government. States will have the right to levy GST on intra-State
transactions including on services.
 It would be applicable to all transactions of goods and service.
 It to be paid to the accounts of the Centre and the States
separately.
32
 The rules for taking and utilization of credit for the Central GST
and the State GST would be aligned.
 Cross utilization of ITC between the Central
GST and the State GST would not be allowed exceptin the case
of inter-State supply of goods.
 The Centre and the States would have concurrent jurisdiction for
the entire value chain and for all taxpayers on the basis of
thresholds for goods and services prescribed forthe States and
the Centre.
 The taxpayer would need to submit commonformat for periodical
returns, to both the Central and to the concerned State GST
authorities.
 Each taxpayer would be allotted a PAN-linked taxpayer
identification number with a total of 13/15 digits.
33
Advantages
GST has been envisaged as a more efficienttax system,neutral in its
application and distributional attractive. The advantages of GST are:
 The tax structure will be made lean and simple.
 The entire Indian market will be a unified market which may
translate into lower business costs.It can facilitate seamless
movementof goods across states and reduce the transaction
costs of businesses.
 It is good for export oriented businesses.Because it is not applied
for goods/services which are exported out of India.
 In the long run, the lower tax burden could translate into lower
prices on goods forconsumers.
 The Suppliers, manufacturers, wholesalers and retailers are able
to recoverGST incurred on input costs as tax credits.This reduces
the cost of doing business,thus enabling fairer prices for
consumers.
 It can bring more transparency and better compliance.
 Number of departments (tax departments)will reduce which in turn
may lead to less corruption.
 More business entities will come under the tax system thus
widening the tax base. This may lead to better and more tax
revenue collections.
 Companies which are under unorganized sectorwill come under
tax regime.
 Widertax base, necessaryfor lowering the tax rates and
eliminating classification disputes.
34
 Elimination of multiplicity of taxes and their cascading effects.
 Rationalization of tax structure and simplificationof compliance
procedures.
 Harmonization of Centre and State tax administrations, which
would reduce duplication and compliance costs.
Taxesto be subsumed-
GST would replace most indirect taxes currently in place such as:
CentralTaxes
 Central Excise Duty
[including additional excise
duties, excise duty under
the Medicinal and Toilet
Preparations (Excise
Duties) Act, 1955]
 Service tax
 Additional Customs Duty
(CVD)
 SpecialAdditional Duty of
Customs (SAD)
 Central surcharges and
cesses
State Taxes
 Value Added Tax
 Central Sales Tax( Levied by
the Centre and collected bythe
States )
 Octroi and Entry Tax
 Purchase Tax
 Luxury Tax
 Taxes on lottery, betting &
gambling
 State cessesand surcharges
 Entertainment tax (other than
the tax levied by the local
bodies)
35
You may wonder why this tax reform is so important for the country and
how it will help the commonman. Here’s how:
 Destination principle: Accordingly,imports would be subjectto
GST, while exports would be zero-rated. In the case of inter-State
transactions within India, the State tax would apply in the State of
destination as opposedto that of origin.
 Simplertax structure: As multiple taxes on a productor service are
eliminated and a single tax comes into place, the tax structure is
expected to be much simplerand easier to understand. Paperwork
will become simplerand there will be a reduction in accounting
complexities forbusinesses.A simple taxation regime can make
the manufacturing sectormore competitive and save both money
and time. Experts opine that the implementation of GST would
push up GDP by 1%-2%.
 Increased tax revenues: A simpler tax structure can bring about
greater compliance,thus increasing the number of tax payers and
in turn tax revenues for the Government. The current state of the
Indian economydemands fiscal consolidationand reduction in
fiscal deficit.A recent report by CRISIL states that GST is the
country’s bestbet to achieve fiscal consolidation.As there is not
much scope to reduce Government expenditure, increasing tax
revenues is the bestalternative to improve the fiscal health.
 Competitive pricing: GST will eliminate all other forms of indirect
taxing. This will effectivelymean that the tax paid by the final
consumerwill come down in mostcases. Lower prices will help in
boosting consumption,which is again beneficialto companies.The
biggestpositive of GST is that goods and services will be taxed on
a commonbasis.
36
 Boostto exports:When the cost of productionfalls in the domestic
market, Indian goods and services will be more price-competitive
in foreignmarkets. This can bode well for exporters,who compete
with manufacturers abroad facing a lower coststructure.
 Reduces transaction costs and unnecessary wastages:A single
registration and a single compliance will suffice forboth SGST and
CGST provided government produces effective IT infrastructure
and integration of states level with the union.
 Eliminates the multiplicity of taxation: The reduction in the number
of taxation applicable in a chain of transaction will help to reduce
the paper work and clean up the current mess that is brought by
existing indirect taxation laws.
 One Point Single Tax: They would be focus on business rather
than worrying about their taxation that may crop at later stages.
This will help the business community to decide their supply chain,
pricing modalities and in the long run helps the consumers being
goods competitive as price will no longer be the function of tax
components but function of sheer business intelligence and
innovation.
 Reduces average tax burdens:- The cost of tax that consumers
have to bear will be certain and it is expected that GST would
reduce the average tax burdens on the consumers.
 Reduces the corruption:-As the no. of taxes reduces so does
the no of visits to multiple department reduces and hence the
reduction in corruption.
37
 There is no doubt that in productionand distribution of goods,
services are increasingly used or consumed and vice versa.
Separate taxes for goods and services,which is the present
taxation system,requires division of transaction values into value
of goods and services for taxation, leading to greater
complications,administration, including compliances costs.In the
GST system,when all the taxes are integrated, it would make
possible the taxation burden to be split equitably between
manufacturing and services.
 In all cases excepta few products and states, there would be
uniformity of tax rates across the states.
38
Disadvantages
 Critics have argued that the GST is a regressive tax, which has a
more pronounced effecton lower income earners, meaning that the
tax consumes a higher proportionof their income,compared to those
earning large incomes.
 A study commissioned by the Curtin University of
Technology,Perth in 2000 argued that the introduction of the GST
would negatively impact the real estate market as it would add up to 8
percentto the cost of new homes and reduce demand by about 12
percent.
 India has opted for a dual-GST model.Critics claim that CGST,SGST
and IGST are nothing but new names for Central Excise/Service Tax,
VAT and CST and hence GST brings nothing new to the table. The
conceptof value-add has never been utilised in the levy of service as
the Delhi High Court is attempting to prove in the case of Home
Solution Retail while under Central Excise the focus is on defining
and refining the definition of manufacture instead of focusing on value
additions. The Revenue can be very stubborn when it comes to
refunds as the Maharashtra Government proves and software entities
that applied for refunds on excess service tax paid on inputs
discovered.
39
Impact on the economy
GST would be one of the mostsignificant fiscalreforms of independent
India. GST is expected to result in major rationalization and simplification
of the consumptiontax structure at both Centre and State levels. It is
expected to replace all indirect taxes, thus avoiding multiple layers of
taxation that currently exist in India.
Depending on the final GST base and rate, there will be a significant
redistribution of tax across differentgoods and services.Goods currently
subjectto both Centre and State taxes should experience a net
reduction in tax, with positive impact on consumerdemand.
Besides simplifying the current system and lowering the costs of doing
business,GST will call for a fundamental redesignof supply chains. It
will affect how the companies operate their businesses,presenting
significant opportunities for long-term revenue and margin improvement.
For instance, under the current tax structure, supply chains are
invariably designed to minimize the burden of the Central Sales Tax,
with distribution centres located in individual States where the
consumers are located.They are sub-optimal from a strategic and
economic perspective.The elimination of the central sales tax will
provide an opportunity to optimize supply chains, enabling companies to
re-evaluate existing procurementpatterns, and distribution and
warehousing arrangements.
GST is also expected to result in a reduction in inventory costs.Dealers
would be able to claim a creditfor the tax paid on their inventories,
leading to improved cash flows.
40
A successfulimplementation of GST is significantly dependenton IT
capability – not just at the tax administration level but also at the
taxpayer level. Efforts will be required to change existing IT systems for
GST enablementwhich could be complex,challenging and lengthy task
for the IT department.
Impact on Prices of Goods & Services:
 For manufactured consumergoods,the current tax regime
means the consumer pays approximately 25-26% more than the
costof production due to excise duty (peak of about 12.5%)and
value added tax
 While there hasn’t beenany clear indication of a GST rate,
experts suggestbetween 18% and 22%. Such goods are
likely to become marginally cheaper
 On the other hand, for goods where the current duty structure is
lower, e.g. small cars, which have an excise duty of only 8%, the
impact of GST will mostlikely be opposite—thesecan get more
expensive
 Heavy vehicles such as SUVs and large cars that have an
excise duty of 27-30% will see a marked drop in prices if GST
is implemented in the expected range of 18-22%
 As regards petroleum, it has beenproposed to keep this out of
the GST umbrella for at least the first two years, which means
petroleum prices aren’t likely to change with the advent of GST
and the variance in prices across states could also continue.
 Prices of goods may not be completelyuniform across states
as there is talk of allowing states to have 1-2% variance in tax.
Let’s assume that if the median GST rate is 20% and the
41
Centre applies 10%,for the remainder, the states may be
allowed, say, a range of 9-11% levy.
 Service tax is 14% currently. If GST is implemented,this rate will
increase (given the expectation that GST will be 18-22%)
making services more expensive
GST will affectevery part of your business in India with regards to cash
flow, costing of capital, pricing of products and services,financial
reporting, tax accounting, compliance processes,supplychain,
procurements and contracts and all technologycurrently enabling this
ecosystem.In addition, there will be significant training needs for
personnelto understand and operate effectivelyunder this new regime.
The transition to GST will have to be managed in a phased manner and
will require proactive and timely planning. Companies will have to start
by understanding key areas of impact to their business modeland
prepare differentscenarios for the design and application of GST.
Implementationof changes will have to be managed through robust
program management across various companystakeholders in the
entire value chain.
42
Summaryof keybusinessimpacts:
Sourcing  Inter-State procurementcould prove viable
 This may open opportunities to consolidate
suppliers/vendors
 Additional duty/CVD and SpecialAdditional duty
components of customs duty to be replaced.
Distribution  Changes in tax system could warrant changes
in both procurementand distribution.
43
 Current arrangements for distribution of finished
goods may no longer be optimal with the
removal of the concept of excise duty on
manufacturing
 Current network structure and product flows
may need review and possiblealteration
Pricing and
profitability
 Tax savings resulting from the GST structure
would require repricing of products
 Margins or price mark-ups would also need to
be re-examined
Cash flow  Removal of the conceptof excise duty on
manufacturing can result in improvement in
cash flow and inventory costs as GST would
now be paid at the time of sale/supply rather
than at the time or removal of goods from the
factory.
System changes
and transaction
management
 Potential changes to accounting and IT systems
in areas of master data, supply chain
transactions, system design.
44
 Existing opentransactions and balances as on
the cut-off date need to be migrated out to
ensure smooth transition to GST
 Changes to supply chain reports (e.g., purchase
register, sales register, services register), other
tax reports and forms (e.g., invoices, purchase
orders)need review
 Appropriate measures such as training of
employees,compliance under GST, customer
education, and tracking of inventory credit are
needed to ensure smoothtransition to the GST
regime
45
Expectation from various other sectors
Benefits of GST-
For the Centre and the States:
According to experts, by implementing the GST, India will gain $15
billion a year. This is because it will promote more exports, create more
employmentopportunities and boostgrowth. It will divide the burden of
tax between manufacturing and services.
For individuals and companies:
In the GST system, taxes for both Centre and State will be collected at
the point of sale. Both will be charged on the manufacturing cost.
Individuals will be benefited bythis as prices are likely to come down
and lower prices mean more consumption,and more consumption
means more production, thereby helping in the growth of the companies.
General points on Various Business Sectors that arise after GST
implementation:-
 Real Estate Industry: Construction and Housing sector need to be
included in the GST tax base being high tax revenue generating sector
and for reduction in no. of tax legislations involved.
 FMCG Sector: Implementationof proposedGST and opening of Foreign
Direct Investment (F.D.I.) are expected to fuel the growth and raise
industry’s size.
 Rail Sector: There have been suggestions for including the rail sector
under the GST umbrella to bring about significant tax gains and widen
the tax net so as to keep overall GST rate low. This will have the added
benefit of ensuring that all inter–state transportation of goods can be
tracked through the proposed Information technology (IT) network.
46
 Information Technology enabled services: At present, if the software is
transferred through electronic form, it should be considered as
Intellectual Property and regarded as a service and if the software is
transmitted on media or any other tangible property, then it should be
treated as goods and this classification is full of litigation. As GST will
have uniform rate for Goods and Services and no concept of state
revenue being VAT or central revenue being service tax and hence,
the reduction in litigation.
 Transport Sector: Truck drivers spend more than half of their time while
negotiating check post and tolls. At present there are more than 600
check points and more than ton types of taxes in road sector.
After the introduction of GST, the time spend by the road transport
industry in complaining with laws will reduce and service is going to be
better which will boost the goods industry and thus the taxes also.
 Impact on Small Enterprises: There will be three categories of Small
Enterprises in the GST regime.
 Those below threshold limit of Rs.1.5 Crores would not be covered.
 Those between the threshold and compositionturnovers will have the
option to pay a turnover based tax i.e. composite tax or opt to join the
GST regime.
 Those above threshold limit will need to be within framework of GST.
Possible downward changes in the threshold in some States consequent
to the introduction of GST may result in obligation being created for
some dealers.
47
Status of implementation of GST
To be fully viable by law in all the States, the GST Bill needs to be
passed by a two-thirds majority in both Houses of Parliament and by the
legislatures of half of the 29 States. In December2014,Finance Minister
Arun Jaitley introduced the constitutional amendmentBill of the GST in
the Lok Sabha. He announced that the GST would be a major reform in
India’s taxation system since 1947,which would reduce transaction
costs for business and boostthe economy.
Earlier, the Bill was rejected by a few States saying that it does not
include the issues of compensation,entry tax and the tax on petroleum
products.Jaitley while introducing the Bill said that all efforts have been
taken to make sure that the States do not sufferany loss of revenue with
the implementation of the GST. The States will receive Rs 11,000 crore
this fiscal year so that it would compensate the losses sufferedby them
for decline in Central sales tax (CST) and subsequentlyfinancial
assistance would be provided for a five-year period.
All said and done, the GST Bill which was conceived way back in the
year 2000 has not seenthe light of the day as yet. If everything goes
well, mostlikely the Bill will be legislated by April 2016.According to a
study by the National Council of Applied Economic Research(NCAER),
full implementation of the GST could expand India’s growth of gross
domestic productby 0.9-1.7 percentage points.By removing the system
of multiple Central and State taxes, the GST can help in reducing
taxation and filing costs and expand business profitability, thereby
attracting investments and promoting GDP growth. Simplificationof tax
norms can help in improving tax compliance and increasing tax
revenues.
48
India: Current status of India’s proposedGST program
• Constitution AmendmentBill passed in the Lok Sabha (Lower House of
Parliament)
• Union Finance Minister in his press conferencehas assured that
effective peak GST rate for India may not be 27%,could be lower than
that
• Bill now scheduled to be tabled in Rajya Sabha (Upper House of
Parliament) for approval, Parliament slated to stay in sessionfor
additional two days (till Friday 15 May 2015)to allow time for passage of
important Bills (including the Constitution AmendmentBill)
Once the Constitution AmendmentBill is passed in the Parliament, it
would still need to be ratified by a majority of the State Assemblieswhich
is expected to occurduring the Monsoon sessionof respective State
Assemblies (ie June-July 2015).After the States have ratified the Bill,
the Indian Constitution would be changed to allow Centre and States
similar powers to levy indirect taxes on goods and services.
Once the Constitution is amended, the GST Council (constituted under
the amended Constitution) would release the draft Model GST Bills – the
Central GST Bill, the State GST Bill and the Integrated GST Bill.
Associated Rulesand Regulations are also likely to be released around
the same time together with the proposed schedule of goods and
services that are to be taxed at a lower rate of GST. If all goes well, we
expectthe Model GST Bills to be published for public consumption
around mid-Septemberto early-October2015.
49
Also if not, the Finance Minister Arun Jaitley recently said the
government is confidentof the new GST regime to roll out from the next
fiscal and expressedconfidence about an early resolution of pending
disputes on direct taxes front.
While expressing confidence that GST would be passed in the Rajya
Sabha as well in the next session,he said it's not necessaryto
implementit from April 1, 2016,itself as it is a transactional tax and can
come into effectfrom the first date of any other month as well.
Parliament panel might propose optionalGST for states.
 The panel, to considerits draft report on the Constitution (115th
Amendment)Bill on the GST, feelstates should be given
enough fiscalspace if the success ofValue Added Tax (VAT) is
to be replicated.
 To address concerns of the states on revenue loss, the panel
might recommend an automatic compensationmechanism,
wherein a fund is created under the proposed GST Council. It
also wants a study to evaluate the impact of GST on the
revenue of states. It could suggesta floor rate with a narrow
band, decisionby voting and not consensus in the GST Council,
omitting the provision on setting up a Dispute Settlement
 The report of the standing committee could be adopted in its
next meeting and the finance ministry, after incorporating the
panel’s views, would approach the cabinet to presentthe Bill in
Parliament with the changes.
50
Conclusion
The taxation of goods and services in India has, hitherto, been
characterized as a cascading and distortionary tax on production
resulting in misallocation of resources and lower productivity and
economic growth. It also inhibits voluntary compliance.It is well
recognized that this problem can be effectivelyaddressed by shifting the
tax burden from productionand trade to final consumption.A well
designed destination-based value added tax on all goods and services is
the most elegant method of eliminating distortions and taxing
consumption.Under this structure, all differentstages of production and
distribution can be interpreted as a mere tax pass-through, and the tax
essentially ‘sticks’ on final consumptionwithin the taxing jurisdiction.
A ‘flawless’ GST in the context of the federal structure which would
optimize efficiency,equity and effectiveness.The ‘flawless’ GST is
designed as a consumption type destination VAT based on invoice-
credit method.
51
Bibliography
 www.mint.com. 2014. Will GST make things costlier or cheaper.
[ONLINE] Available at:
http://www.livemint.com/Money/ZBV1v5fDFpLM6RlXil8giO/Will-
GST-make-things-costlier-or-cheaper.html.[Accessed16
September15].
 www.prsindia.org. 2013. Constitutional amendments.[ONLINE]
Available at: http://www.prsindia.org/billtrack/the-constitution-
122nd-amendment-gst-bill-2014-3505/.[Accessed15 September
15].
 quora. 2013. How will GST work in India. [ONLINE] Available at:
https://www.quora.com/How-will-the-goods-and-sevices-tax-GST-
work-in-India-How-is-it-any-different-than-the-value-added-tax-
VAT. [Accessed 21 September15].
 ey. 2015. The roadmap. [ONLINE] Available at:
http://www.ey.com/IN/en/Services/Tax/EY-goods-and-services-tax-
gst. [Accessed 17 September15].
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https://en.wikipedia.org/wiki/Goods_and_Services_Tax_(India)_Bill
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 www.gstindia.com. 2014. What is GST. [ONLINE] Available at:
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cd=3&cad=rja&uact=8&ved=0CCQQFjACahUKEwiG_MiZko_IAhU
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 www.legalservicesindia.com.2012.GST feasibility. [ONLINE]
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india/government/gst-one-step-towards-simplifying-the-muddled-
up-tax-system. [Accessed 16 September15].
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IMPLEMENTATION OF GST IN INDIA - 1

  • 1. 1 “IMPLEMENTATION OF GST IN INDIA” Bachelor of Commerce FINANCIAL MARKETS Semester V (2015-2016) Submitted by SOWJANYA SAMPATHKUMAR Roll No. 51
  • 2. 2 INDEX Sr. No. Particulars Page No. 1 Introduction to GST 1 2 Need for GST in India 3 3 Existing taxation system vs.GST 5 4 Application and functioning of GST 14 5 Process of implementation and Roadmap 21 6 Hurdles of implementation 25 7 Features 28 8 Advantages 31 9 Disadvantages 36 10 Impact on the economy 37 11 Expectation from various other sectors 43 12 Status of implementation of GST 45 13 Conclusion 48 14 Bibliography 49
  • 3. 3 Introduction to GST GST (goods and service tax) is a comprehensive tax levy on manufacture, sale and consumptionof goods and service at a national level. ‘G’ – Goods ‘S’ – Services ‘T’ – Tax GST is a tax on goods and services with value addition at each stage having comprehensive and continuous chain of set-of benefits from the producer’s/service provider’s point up to the retailer’s level where only the final consumershould bear the tax.” Through a tax credit mechanism, GST is collected on value-added goods and services at each stage of sale or purchase in the supply chain. GST is paid on the procurementof goods and services can be set off against that payable on the supply of goods or services.But being the last person in the supply chain, the end consumerhas to bear this tax and so, in many respects,GST is like a last-point retail tax. France was the first country to introduce GST in 1954. Worldwide, Almost 150 countries have introduced GST in one or the other form since now. Most of the countries have a unified GST system. Brazil and Canada follow a dual system vis-à-vis India is going to introduce. In China, GST applies only to goods and the provision of repairs, replacement and processing services. GST rates of some countries are given below:
  • 4. 4 Country Rate of GST Australia 10% France 19.6% Canada 5% Germany 19% Japan 5% Singapore 7% New Zealand 15% Basically, GST is a value added tax, levied at all points in the supply chain with credit allowed for any tax paid on inputs acquired for use in making the supply. It is indirect tax that brings most of the taxes imposed on most goods and services,on manufacture, sale and consumptionof goods and services,under a single domain at the national level. It would apply to both goods and services in a comprehensive manner with exemptions restricted to a minimum and it is payable at the final point of consumption.
  • 5. 5 Need for GST in India Introduction of a GST to replace the existing multiple tax structures of Centre and State taxes are not only desirable but imperative in the emerging economic environment. Increasingly, services are used or consumed in productionand distribution of goods and vice versa. Separate taxation of goods and services oftenrequires splitting of transaction values into value of goods and services for taxation, which leads to greater complexities,administration and compliances costs. Integration of various taxes into a GST system would make it possibleto give full creditfor inputs taxes collected.GST,being a destination-based consumptiontax based on VAT principle, would also greatly help in removing economic distortions and will help in developmentof a commonnational market. The implementation of GST will help create a commonIndian market and reduce the cascading effectof tax on the costof goods and services.It will impact tax structure, tax incidence,tax computation, credit utilization and reporting, leading to a complete overhaul of the current indirect tax system. GST will have a far-reaching impact on almost all aspects of business operations in a country, including pricing of products and services; supply chain optimization; IT, accounting and tax compliance systems. GST is expected to be a critical reform in spurring growth in the economy.When introduced, GST will not only make the tax system simpler, but will also help in increased compliance,boosttax revenues, reduce the tax outflow in the hands of the consumers and make exports competitive.
  • 6. 6 It is hoped that the new Government will set forth a roadmap of the GST implementation in the upcoming Budget.The GST or the Goods and Service Tax is a long pending indirect tax reform which India has been waiting for, and which is hoped to iron out the wrinkles in the existing tax system. This comprehensive tax policy is expected to be one of the most important reforms in contributing to the India growth story. GST was first introduced in India during 2007-08 budget sessions.On 17th December2014,the current Union Cabinet ministry approved the proposalfor introduction GST Constitutional AmendmentBill. On 19th of December2014,the bill was presented on GST in Lok sabha. The Bill will be tabled and taken up for discussionduring the coming Budget session.The current central governmentis very determined to implementGST Constitutional AmendmentBill. The introduction of the GST system is by far the mostimportant tax reform in India. Consensus and coordination among states is required for it to succeed. It will affectprices,business processesand investments in all segments of the economy.It will act as a catalyst for promoting manufacturing in the country, thereby, supporting the ‘Make in India’ program of the Government. The Government of India is proposing to replace the current complex structure of multiple indirect taxes in favour of a comprehensive dual Goods and Services Tax (GST) expected to be implemented from 1 April 2016.GST will be one of the most significant tax reforms in the fiscal history of India.
  • 7. 7 Existing taxation system vs. GST Existing: Tax is compulsorycontribution to state revenue, levied by the government on workers' income and business profits,or added to the costof some goods,services,and transactions.  Direct Taxes: These types of taxes are directly imposed & paid to Government of India. There has been a steady rise in the net Direct Tax collections in India over the years, which is healthy signal. Direct taxes, which are imposed by the Government of India, are:  Income Tax- Income tax, this tax is mostly known to everyone. Every individual whose total income exceeds taxable limit has to pay income tax based on prevailing rates applicable time to time. By doing investment in certain scheme you can save Income Tax.
  • 8. 8 For FY 2015-16 Income tax rates are:-  Wealth tax- A wealth tax (also called a capital tax, equity tax, or net worth tax) is a levy on the total value of personal assets, including owner-occupied housing; cash, bank deposits, money funds, and savings in insurance and pension plans; investment in real estate and unincorporated businesses; and corporate stock, financial securities, and personal trusts. Typically liabilities (primarily mortgages and other loans) are deducted; hence it is sometimes called a net wealth tax. A wealth tax taxes the accumulated stock of purchasing power, in contrast to income tax, which is a tax on the flow of assets.  Capital Gains Tax- Capital Gain tax as name suggests it is tax on gain in capital. If you sale property, shares, bonds & precious material etc. and earn profit on it within predefined time frame you are supposed to pay capital gain tax. The capital gain is the difference between the money received from selling the asset and the price paid for it.
  • 9. 9 Capital gain tax is categorized into short-term gains and long- term gains. The Long-term Capital Gains Tax is charged if the capital assets are kept for more than certain period 1 year in case of share and 3 years in case of property. Short-term Capital Gains Tax is applicable if these assets are held for less than the above-mentioned period.  Indirect Taxes: An indirect tax is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the consumer). The intermediary later files a tax return and forwards the tax proceeds to government with the return. Some of the indirect taxes imposed are:  Sales Tax: Sales tax charged on the sales of movable goods. Sale tax on Inter State sale is charged by Union Government, while sales tax on intra-State sale (sale within State) (now termed as VAT) is charged by State Government. Sales can be broadly classified inthree categories.(a) Inter-State Sale (b) Sale during import/export (c) Intra-State (i.e. within the State) sale. State Government can impose sales tax only on sale within the State. CST is payable on inter-State sales is @ 2%, if C form is obtained. Even if CST is charged by Union Government, the revenue goes to State Government. State from which movement of goods commences gets revenue. CST Act is administered by State Government.
  • 10. 10  Service Tax: Most of the paid services you take you have to pay service tax on those services. This tax is called service tax. Over the past few years, service tax been expanded to cover new services. Few of the major service which comes under vicinity of service tax are telephone, tour operator, architect, interior decorator, advertising, beauty parlour, health centre, banking and financial service, event management, maintenance service, consultancy service. Current rate of interest on service tax is 14%. This tax is passed on to us by service provider.  Value Added Tax: The Sales Tax is the most important source of revenue of the state governments; every state has their respective Sales Tax Act. The tax rates are also different for respective states. Tax imposed by Central government on sale of goods is called as Sales tax same is called as Value added tax by state government.VAT is additional to the price of goods and passed on to us as buyer (end user). Around 220+ Items are covered with VAT. VAT rates vary based on nature of item and state. Government is planning to merge service tax and sales tax in form of Goods service tax (GST).  Custom duty & Octroi (On Goods): Custom Duty is a type of indirect tax charged on goods imported into India. One has to pay this duty, on goods that are imported from a foreign country into India. This duty is often payable at the port of entry (like the airport). This duty rate varies based on nature of items.
  • 11. 11 Octroi is tax applicable on goods entering in to municipality or any other jurisdiction for use, consumption or sale. In simple terms one can call it as Entry Tax.  Excise Duty: An excise or excise duty is a type of tax charged on goods produced within the country. This is opposite to custom duty which is charged on bringing goods from outside of country. Another name of this tax is CENVAT (Central Value Added Tax). If you are producer / manufacturer of goods or you hire labour to manufacture goods you are liable to pay excise duty.  Entertainment Tax: Tax is also applicable on Entertainment; this tax is imposed bystate government on every financial transaction that is related to entertainment such as movie tickets, major commercial shows exhibition, broadcasting service, DTH service and cable service. (Indirect taxes)
  • 12. 12 GST: GST is a major indirect tax reform in India which takes VAT to its logical conclusion. GST would avoid burden of multiple taxation (tax on tax) with a cascading effect.GST seeks to rule out cascading tax effect. Once it introduced, CST will also be removed. The proposedmodelof GST and the rate- A dual GST system is planned to be implemented in India as proposed by the Empowered Committeeunder which the GST will be divided into two parts:  State Goods and Services Tax (SGST)  Central Goods and Services Tax (CGST)  Integrated Goods and Services Tax (IGST) Both SGST and CGST will be levied on the taxable value of a transaction. All goods and services, leaving aside a few, will be brought into the GST and there will be no differencebetweengoods and services.The GST system will combine Central excise duty, additional excise duty, services tax, State VAT entertainment tax etc. under one banner.
  • 13. 13 The GST rate is expected to be around 14-16 per cent. Afterthe combined GST rate is fixed, the States and the Centre will decide on the SGST and CGST rates. At present, 10 per cent is levied on services and the indirect taxes on most goods are around 20 per cent.  Comparisonbetween the Existing system and GST: Example: 1 (Comprehensive Comparison) (Assumed rates) Comparisonbetween Multiple Indirect tax laws and proposed one law Particulars Without GST With GST (Rs.) Manufacture to Wholesaler Cost of Production 5,000.00 5,000.00 Add: Profit Margin 2,000.00 2,000.00 Manufacturer Price 7,000.00 7,000.00 Add: Excise Duty @ 12% 840.00 – Total Value(a) 7,840.00 7,000.00 Add: VAT @ 12.5% 980.00 – Add: CGST @ 12% – 840.00 Add: SGST @ 12% – 840.00 Invoice Value 8,820.00 8,680.00 Wholesaler to Retailer COG to Wholesaler(a) 7,840.00 7,000.00 Add: Profit Margin@10% 784.00 700.00 Total Value(b) 8,624.00 7,700.00
  • 14. 14 Add: VAT @ 12.5% 1,078.00 – Add: CGST @ 12% – 924.00 Add: SGST @ 12% – 924.00 Invoice Value 9,702.00 9,548.00 Retailer to Consumer: COG to Retailer (b) 8,624.00 7,700.00 Add: Profit Margin 862.40 770.00 Total Value(c) 9,486.40 8,470.00 Add: VAT @ 12.5% 1,185.80 – Add: CGST @ 12% – 1,016.40 Add: SGST @ 12% – 1,016.40 Total Price to the Final consumer 10,672.20 10,502.80 Cost saving to consumer – 169.40 % Cost Saving – 1.59 Indirect taxes that will be included under GST: State taxes which will be subsumed in SGST-  VAT/Sales Tax  Entertainment Tax (unless it is levied by local bodies)  Luxury Tax  Taxes on lottery, betting and gambling.  State cess and surcharges to the extent related to supply of goods and services.  Entry tax not on in lieu of octroi.
  • 15. 15 Central Taxes which will be subsumed in CGST-  Central Excise Duty.  Additional Excise Duty.  The Excise Duty levied under the medical and Toiletries Preparation Act  Service Tax.  Additional Customs Duty, commonly known as countervailing Duty (CVD)  Special Additional duty of customs(SAD)  Education Cess  Surcharges. Taxes that may or may not be subsumed due to no consensus between the Central and State Governments-  Stamp Duty  Vehicle Tax  Electricity Duty  Other Entry taxes and Octroi  Entertainment Tax (levied by local bodies)  Basic customs duty and safeguard duties on import of goods into India.
  • 16. 16 Application and functioning of GST In keeping with the federalstructure of India, it is proposed that GST be levied concurrently by the Centre (CGST) and the States (SGST). It is expected that the base and other essential designfeatures would be commonbetween CGST and SGST,across SGSTs for the individual States. Both CGST and SGST would be levied on the basis of the destination principle. Thus, exports would be zero-rated, and imports would attract the tax in the same manner as domestic goodsand services.Inter-State supplies within India would attract an Integrated GST (aggregate of CGST and the SGST of the Destination State). GST is a consumptionbased tax/levy. It is based on the “Destination principle.” GST is applied on goods and services at the place where final/actual consumption happens. GST is collected on value-added goods and services at each stage of sale or purchase in the supply chain. GST paid on the procurementof goods and services can be set off against that payable on the supply of goods or services. The manufacturer or wholesaler or retailer will pay the applicable GST rate but will claim back through tax credit mechanism. But being the last personin the supply chain, the end consumer has to bear this tax and so, in many respects,GST is like a last-point retail tax. GST is going to be collected at point of Sale.
  • 17. 17 The GST is an indirect tax which means that the tax is passed on till the last stage wherein it is the customerof the goods and services who bears the tax. This is the case even today for all indirect taxes but the differenceunder the GST is that with streamlining of the multiple taxes the final costto the customerwill come out to be lower on the elimination of double charging in the system. The current tax structure does not allow a business personto take tax credits.There are lot of chances that double taxation takes place at every step of supply chain. This may set to change with the implementation of GST.
  • 18. 18 So, how is GST Levied? GST will be levied on the place of consumption of Goods and services.How does GST operate?  Case 1: Sale in one state, resale in the same state. In the example illustrated below, goods are moving from Mumbai to Pune. Since it is a sale within a state, CGST and SGST will be levied. The collectiongoes to the Central Government and the State Government as pointed out in the diagram. Then the goods are resold from Pune to Nagpur. This is again a sale within a state, so CGST and SGST will be levied. Sale price is increased so tax liability will also increase. In the case of resale, the credit of input CGST and input SGST (Rs. 8) is claimed as shown; and the remaining taxes go to the respective governments.
  • 19. 19  Case 2: Sale in one state, resale in another state. In this case, goods are moving from Indore to Bhopal. Since it is a sale within a state, CGST and SGST will be levied. The collectiongoes to the Central Government and the State Government as pointed out in the diagram. Later the goods are resold from Bhopal to Lucknow (outside the state). Therefore, IGST will be levied. Whole IGST goes to the central government. Against IGST,both the input taxes are taken as credit. But we see that SGST never went to the central government, still the credit is claimed.This is the crux of GST. Since this amounts to a loss to the Central Government, the state government compensatesthe central governmentby transferring the credit to the central government.
  • 20. 20  Case 3: Sale outside the state, resale in that state. In this case, goods are moving from Delhi to Jaipur. Since it is an interstate sale, IGST will be levied. The collectiongoes to the Central Government. Later the goods are resold from Jaipur to Jodhpur (within the state). Therefore, CGST and SGST will be levied. Against CGST and SGST,50% of the IGST, that is Rs. 8 is taken as a credit. But we see that IGST never went to the state government, still the credit is claimed against SGST.Since this amounts to a loss to the State Government, the Central government compensatesthe State government by transferring the credit to the State government.
  • 21. 21 It is proposedthat the CGST will subsume central excise duty (Cenvat), service tax, and additional duties of customs at the Central level; and value-added tax, central sales tax, entertainment tax, luxury tax, octroi, lottery taxes, electricity duty, state surcharges related to supply of goods and services and purchase tax at the state level. Rate of GST: There would be two-rate structure –a lower rate for necessary items and items of basic importance and a standard rate for goods in general. There will also be a special rate for precious metals and a list of exempted items. For goods in general, government is considering pegging the rate of GST from 20% to 23% that is well above the global average rate of 16.4% for similar taxes, however below the revenue neutral rate of 27%. The combined GST rate is currently being discussed by the Centre and the EC. The rate is expected to be in the range of 14-16 %. Once the total GST rate is determined,the states and the Centre have to agree on the CGST and SGST rates. Today, services are taxed at 10% and the combined incidence of indirect taxes on most goods is around 20%. Model of GST with example:  The GST shall have two components:one levied by the Centre (referred to as Central GST or CGST), and the other levied by the States (referred to as State GST or SGST). Rates for Central GST and State GST would be approved appropriately, reflecting revenue considerations and acceptability.  The CGST and the SGST would be applicable to all transactions of goods and services made for a consideration except the exempted goods and services.
  • 22. 22  Cross utilization of ITC both in case of Inputs and capital goods between the CGST and the SGST would not be permitted except in the case of inter-State supply of goods and services (i.e. IGST).  The Centre and the States would have concurrent jurisdiction for the entire value chain and for all taxpayers on the basis of thresholds  For goods and services prescribed for the States and the Centre. The prices of commoditiesare expected to come down in the long run as dealers pass on the benefits of reduced tax incidence to consumers by slashing the prices of goods.
  • 23. 23 Process of implementation and Roadmap The Constitution (One Hundred and Twenty-second Amendment)Bill, 2014 was introduced in the Lok Sabha by Finance Minister Arun Jaitley on 19 December2014.The Bill was passed by the House on 6 May 2015, receiving 352 votes for and 37 against. All 37 no votes came from members ofthe AIADMK.The Indian National Congress party opposed the Bill and boycotted the vote, its members leaving the House before voting began. Although the BJD and the CPI(M) had previously opposed the Bill, they cast votes in favour. The Government attempted to move the Bill for considerationin the Rajya Sabha on 11 May 2015, however, members of the Oppositionrepeatedlystalled the proceedings of the House. In order to appease the Opposition's demand for further scrutiny of the Bill, Jaitley moved a motion to referthe Bill to a Select Committee.The 21 memberCommittee is expected to give its report by the end of the Monsoon session. In 2000,the Vajpayee Government started discussionon GST by setting up an empowered committee.The committee was headed by Asim Dasgupta, (Finance Minister,Government of WestBengal). It was given the task of designing the GST modeland overseeing the IT back-end preparednessforits rollout. It is consideredto be a major improvement over the pre-existing central excise duty at the national level and the sales tax system at the state level, the new tax will be a further significant breakthrough and the next logical step towards a comprehensive indirecttax reform in the country. The Kelkar Task Force on implementation of the FRBM Act, 2003 had pointed out that although the indirect tax policy in India has been steadily progressing in the direction of VAT principle since 1986,the existing system of taxation of goods and services still suffers from many problems and had suggested
  • 24. 24 a comprehensive Goods and Services Tax (GST) based on VAT principle. GST system is targeted to be a simple,transparent and efficientsystem of indirect taxation as has been adopted by over 130 countries around the world. This involves taxation of goods and services in an integrated manner as the blurring of line of demarcation between goods and services has made separate taxation of goods and services untenable. Introduction of an Goods and Services Tax (GST) to replace the existing multiple tax structures of Centre and State taxes is not only desirable but imperative in the emerging economic environment. Increasingly, services are used or consumed in production and distribution of goods and vice versa. Separate taxation of goods and services oftenrequires splitting of transactions value into value of goods and services for taxation, which leads to greater complexities, administration and compliances costs.Integration of various Central and State taxes into a GST system would make it possibleto give full credit for inputs taxes collected.GST,being a destination-based consumption tax based on VAT principle, would also greatly help in removing economic distortions caused by presentcomplextax structure and will help in developmentof a commonnational market. A proposalto introduce a national level Goods and Services Tax (GST) by April 1, 2010 was first mooted in the BudgetSpeechfor the financial year 2006- 07. Since the proposalinvolved reform/restructuring of not only indirect taxes levied by the Centre but also the States, the responsibilityof preparing a Designand Road Map for the implementation of GST was assigned to the Empowered Committeeof State Finance Ministers (EC). In April, 2008,the EC a report to the titled “A Model and Roadmap for Goods and Services Tax (GST) in India” containing broad recommendations aboutthe structure and designof GST.
  • 25. 25 In response to the report, the Department of Revenue made some suggestions to be incorporated in the design and structure of proposed GST. Based on inputs from GOI and States, The EC released its First DiscussionPaper on Goods and Services Tax in India on the 10th of November, 2009 with the objective of generating a debate and obtaining inputs from all stakeholders. A dual GST module for the country has been proposed by the EC. This dual GST modelhas been accepted by centre. Under this modelGST have two components viz. the Central GST to be levied and collected bythe Centre and the State GST to be levied and collected by the respective States. Central Excise duty, additional excise duty, Service Tax, and additional duty of customs (equivalent to excise), State VAT,entertainment tax, taxes on lotteries, betting and gambling and entry tax (not levied by local bodies)would be subsumed within GST. In order to take the GST related work further, a Joint Working Group consisting of officers from Central as well as State Government was constituted. This was further trifurcated into three Sub- Working Groups to work separately on draft legislations required for GST, process/formsto be followed in GST regime and IT infrastructure developmentneeded for smoothfunctioning of proposedGST.In addition, an Empowered Group fordevelopmentof IT Systems required for Goods and Services Tax regime has been set up under the chairmanship of Dr. Nandan Nilekani. A draft of the Constitutional AmendmentBill has been prepared and has beensent to the EC for obtaining views of the States. The Goods and Service Tax Bill or GST Bill, officially known as The Constitution (122nd Amendment)Bill, 2014,would be a Value added Tax (VAT) to be implemented in India, from April 2016.
  • 26. 26 .  Suggestions,in the Reportto be submitted by the Select Committee,will be discussed and consensus reached before Rajya Sabha passes the Bill with two-third majority.  The Bill thereafter will be needed to be ratified by minimum of 15 States in their respective assembliesbeforethe Presidentcan give its assent for its enactment.  GST Council will be formed within 60 days of the enactment of the Bill.  GST Legislationand Place of Supply Rules will be framed and put in the public domain for comments.  GST Network, an IT backbone of GST, which will facilitate online registration, tax payment and return filing will be launched.  States will frame their respective GST Legislations to enable them to implementGST. It will be in line with the Central GST Legislation.
  • 27. 27 Hurdles of implementation Before it can be introduced, the Centre and states have to sort out issues like agreement on GST rates, constitutional amendments empowering states to tax services,taxation on inter-state transactions of goods and services, drafting of CGST and SGST laws, consultation with all stakeholders including trade and industry associations before finalisation, administrative preparednessto implement the new tax regime and resolution of all other issues under discussion. Challenges for implementing Goods & Services Tax system:  The bill is yet to be tabled and passed in the Parliament.  To implementthe bill (if cleared by the Parliament) there has to be lot changes at administration level, InformationTechnology integration has to happen, sound IT infrastructure is needed,the state governments has to be compensatedforthe loss of revenues (if any) and many more.  It is really required that all the states implement the GST together and that too at the same rates. Otherwise, it will be really cumbersomeforbusinesses to complywith the provisions of the law. Further, GST will be very advantageous if the rates are same, because in that case taxes will not be a factor in investment location decisions,and people will be able to focus on profitability.  For smooth functioning, it is important that the GST clearly sets out the taxable event. Presently, the CENVAT credit rules, the Point of Taxation Rules are amended/introduced for this purpose only. However, the rules should be more refined and free from ambiguity.
  • 28. 28  The GST is a destination based tax, not the origin one. In such circumstances,it should be clearly identifiable as to where the goods are going. This shall be difficult in case of services,because it is not easy to identify where a service is provided,thus this should be properly dealt with.  More awareness about GST and its advantages have to be made, and professionals really have to take the onus to assume this responsibility.  GST, being a consumption-basedtax, states with higher consumptionof goods and services will have better revenues. So, the co-operationfrom state governments would be one of the key factors for the successfulimplementation of GST  Assuming GST at 20%,services would see a rise in tax rates while manufactured consumergoods may see a fall. The two are likely to offseteach other resulting in a limited net impact on inflation based on the consumerprice index.  But actual impact on inflation can’t be known with certainty as much depends on how the change in tax rates is passed on to consumers and what the actual GST rate is.  If there is a partial pass through of higher taxes, impact could be limited, but if GST rate is higher than 18-22%,effecton inflation can be more than anticipated  2 levels of GST—state and Centre—means multiple compliances.  This could mean not just stricter compliance and audit but also an increase in costof compliance.  Globally, the norm is a single, central GST. The jury is still out whether the central and state governments will function on a commonplatform due to existing cultural and operational differences.
  • 29. 29  The GST credit flow requires each vendor to input details of invoices issued containing details of the customer,for the next in line (i.e. the customer)to receive credit. If vendors aren’t able to upload invoice details in a timely manner, then credit blockages could happen. Since GST replaces many cascading taxes, the commonman may benefitafter implementing it. But it all depends on ‘what rate the GST is going to be fixed at?’ Also,Small Traders (based on Annual Business turnover) may be exempted from it.
  • 30. 30 Features  The proposedArticle 246A intends to grant concurrent powers to the Union and State legislatures to make laws with respectto GST. The power to make laws in respectof supplies in the course of inter-State trade or commercewill be vested only in the Union government. States will have the right to levy GST on intra-State transactions including on services.  Centre will levy IGST on inter-State supply of goods and services. On intra-State supply of goods and services,Centre to levy CGST and States shall levy SGST. Importof goods will be subjectto basic customs duty and IGST.  GST defined as any tax on supply of goods and services other than alcohol for human consumption.  Central taxes like, Central Excise duty, Additional Excise duty, Service tax, Additional Custom duty and Special Additional duty and State level taxes like, VAT or sales tax, Central Sales tax, Entertainment tax, Entry tax, Purchase tax, Luxury tax and Octroi will subsume in GST.  Petroleum and petroleum products shall be subject to the GST on a date to be notified by the GST Council.  Alcoholfor human consumptionwill be out of GST, States to continue to levy taxes on alcohol. Items of tobacco productwill be subjectto separate excise duty by the centre over and above GST.  1% origin based additional tax to be levied on inter-State supply of goods will be non-creditable in GST chain. This origin based non- creditable tax on supply of goods will be hugely distortionary and should be revisited.
  • 31. 31  Provision for removing imposition of entry tax / Octroi across India.  Entertainment tax, imposed byStates on movie, theatre, etc will be subsumed in GST, but taxes on entertainment at panchayat, municipality or district level to continue.  GST may be levied on the sale of newspapers and advertisements and this would give the government’s access to substantial incremental revenues.  Stamp duties, typically imposed on legal agreements by the state, will continue to be levied by the States.  Article 279 provides the constitution of GST Council by the presidentwithin 60 days from the date of the passing of the Bill and also provides for the appointment of members of the GST Council and its compositionand powers to make recommendation.  Administration of GST will be the responsibilityof the GST Council, which will be the apex policy making body for GST. Members of GST Council comprisedof the Central and State ministers in charge of the finance portfolio.In the GST Council Centre will have one-third vote and all States combined to have two-third vote. Quorum for GST Council is 50% of total members and for majority of Council decisions 75% of the weighted votes of the members presentand voting.  The power to make laws in respectof supplies in the course of inter-State trade or commercewill be vested only in the Union government. States will have the right to levy GST on intra-State transactions including on services.  It would be applicable to all transactions of goods and service.  It to be paid to the accounts of the Centre and the States separately.
  • 32. 32  The rules for taking and utilization of credit for the Central GST and the State GST would be aligned.  Cross utilization of ITC between the Central GST and the State GST would not be allowed exceptin the case of inter-State supply of goods.  The Centre and the States would have concurrent jurisdiction for the entire value chain and for all taxpayers on the basis of thresholds for goods and services prescribed forthe States and the Centre.  The taxpayer would need to submit commonformat for periodical returns, to both the Central and to the concerned State GST authorities.  Each taxpayer would be allotted a PAN-linked taxpayer identification number with a total of 13/15 digits.
  • 33. 33 Advantages GST has been envisaged as a more efficienttax system,neutral in its application and distributional attractive. The advantages of GST are:  The tax structure will be made lean and simple.  The entire Indian market will be a unified market which may translate into lower business costs.It can facilitate seamless movementof goods across states and reduce the transaction costs of businesses.  It is good for export oriented businesses.Because it is not applied for goods/services which are exported out of India.  In the long run, the lower tax burden could translate into lower prices on goods forconsumers.  The Suppliers, manufacturers, wholesalers and retailers are able to recoverGST incurred on input costs as tax credits.This reduces the cost of doing business,thus enabling fairer prices for consumers.  It can bring more transparency and better compliance.  Number of departments (tax departments)will reduce which in turn may lead to less corruption.  More business entities will come under the tax system thus widening the tax base. This may lead to better and more tax revenue collections.  Companies which are under unorganized sectorwill come under tax regime.  Widertax base, necessaryfor lowering the tax rates and eliminating classification disputes.
  • 34. 34  Elimination of multiplicity of taxes and their cascading effects.  Rationalization of tax structure and simplificationof compliance procedures.  Harmonization of Centre and State tax administrations, which would reduce duplication and compliance costs. Taxesto be subsumed- GST would replace most indirect taxes currently in place such as: CentralTaxes  Central Excise Duty [including additional excise duties, excise duty under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955]  Service tax  Additional Customs Duty (CVD)  SpecialAdditional Duty of Customs (SAD)  Central surcharges and cesses State Taxes  Value Added Tax  Central Sales Tax( Levied by the Centre and collected bythe States )  Octroi and Entry Tax  Purchase Tax  Luxury Tax  Taxes on lottery, betting & gambling  State cessesand surcharges  Entertainment tax (other than the tax levied by the local bodies)
  • 35. 35 You may wonder why this tax reform is so important for the country and how it will help the commonman. Here’s how:  Destination principle: Accordingly,imports would be subjectto GST, while exports would be zero-rated. In the case of inter-State transactions within India, the State tax would apply in the State of destination as opposedto that of origin.  Simplertax structure: As multiple taxes on a productor service are eliminated and a single tax comes into place, the tax structure is expected to be much simplerand easier to understand. Paperwork will become simplerand there will be a reduction in accounting complexities forbusinesses.A simple taxation regime can make the manufacturing sectormore competitive and save both money and time. Experts opine that the implementation of GST would push up GDP by 1%-2%.  Increased tax revenues: A simpler tax structure can bring about greater compliance,thus increasing the number of tax payers and in turn tax revenues for the Government. The current state of the Indian economydemands fiscal consolidationand reduction in fiscal deficit.A recent report by CRISIL states that GST is the country’s bestbet to achieve fiscal consolidation.As there is not much scope to reduce Government expenditure, increasing tax revenues is the bestalternative to improve the fiscal health.  Competitive pricing: GST will eliminate all other forms of indirect taxing. This will effectivelymean that the tax paid by the final consumerwill come down in mostcases. Lower prices will help in boosting consumption,which is again beneficialto companies.The biggestpositive of GST is that goods and services will be taxed on a commonbasis.
  • 36. 36  Boostto exports:When the cost of productionfalls in the domestic market, Indian goods and services will be more price-competitive in foreignmarkets. This can bode well for exporters,who compete with manufacturers abroad facing a lower coststructure.  Reduces transaction costs and unnecessary wastages:A single registration and a single compliance will suffice forboth SGST and CGST provided government produces effective IT infrastructure and integration of states level with the union.  Eliminates the multiplicity of taxation: The reduction in the number of taxation applicable in a chain of transaction will help to reduce the paper work and clean up the current mess that is brought by existing indirect taxation laws.  One Point Single Tax: They would be focus on business rather than worrying about their taxation that may crop at later stages. This will help the business community to decide their supply chain, pricing modalities and in the long run helps the consumers being goods competitive as price will no longer be the function of tax components but function of sheer business intelligence and innovation.  Reduces average tax burdens:- The cost of tax that consumers have to bear will be certain and it is expected that GST would reduce the average tax burdens on the consumers.  Reduces the corruption:-As the no. of taxes reduces so does the no of visits to multiple department reduces and hence the reduction in corruption.
  • 37. 37  There is no doubt that in productionand distribution of goods, services are increasingly used or consumed and vice versa. Separate taxes for goods and services,which is the present taxation system,requires division of transaction values into value of goods and services for taxation, leading to greater complications,administration, including compliances costs.In the GST system,when all the taxes are integrated, it would make possible the taxation burden to be split equitably between manufacturing and services.  In all cases excepta few products and states, there would be uniformity of tax rates across the states.
  • 38. 38 Disadvantages  Critics have argued that the GST is a regressive tax, which has a more pronounced effecton lower income earners, meaning that the tax consumes a higher proportionof their income,compared to those earning large incomes.  A study commissioned by the Curtin University of Technology,Perth in 2000 argued that the introduction of the GST would negatively impact the real estate market as it would add up to 8 percentto the cost of new homes and reduce demand by about 12 percent.  India has opted for a dual-GST model.Critics claim that CGST,SGST and IGST are nothing but new names for Central Excise/Service Tax, VAT and CST and hence GST brings nothing new to the table. The conceptof value-add has never been utilised in the levy of service as the Delhi High Court is attempting to prove in the case of Home Solution Retail while under Central Excise the focus is on defining and refining the definition of manufacture instead of focusing on value additions. The Revenue can be very stubborn when it comes to refunds as the Maharashtra Government proves and software entities that applied for refunds on excess service tax paid on inputs discovered.
  • 39. 39 Impact on the economy GST would be one of the mostsignificant fiscalreforms of independent India. GST is expected to result in major rationalization and simplification of the consumptiontax structure at both Centre and State levels. It is expected to replace all indirect taxes, thus avoiding multiple layers of taxation that currently exist in India. Depending on the final GST base and rate, there will be a significant redistribution of tax across differentgoods and services.Goods currently subjectto both Centre and State taxes should experience a net reduction in tax, with positive impact on consumerdemand. Besides simplifying the current system and lowering the costs of doing business,GST will call for a fundamental redesignof supply chains. It will affect how the companies operate their businesses,presenting significant opportunities for long-term revenue and margin improvement. For instance, under the current tax structure, supply chains are invariably designed to minimize the burden of the Central Sales Tax, with distribution centres located in individual States where the consumers are located.They are sub-optimal from a strategic and economic perspective.The elimination of the central sales tax will provide an opportunity to optimize supply chains, enabling companies to re-evaluate existing procurementpatterns, and distribution and warehousing arrangements. GST is also expected to result in a reduction in inventory costs.Dealers would be able to claim a creditfor the tax paid on their inventories, leading to improved cash flows.
  • 40. 40 A successfulimplementation of GST is significantly dependenton IT capability – not just at the tax administration level but also at the taxpayer level. Efforts will be required to change existing IT systems for GST enablementwhich could be complex,challenging and lengthy task for the IT department. Impact on Prices of Goods & Services:  For manufactured consumergoods,the current tax regime means the consumer pays approximately 25-26% more than the costof production due to excise duty (peak of about 12.5%)and value added tax  While there hasn’t beenany clear indication of a GST rate, experts suggestbetween 18% and 22%. Such goods are likely to become marginally cheaper  On the other hand, for goods where the current duty structure is lower, e.g. small cars, which have an excise duty of only 8%, the impact of GST will mostlikely be opposite—thesecan get more expensive  Heavy vehicles such as SUVs and large cars that have an excise duty of 27-30% will see a marked drop in prices if GST is implemented in the expected range of 18-22%  As regards petroleum, it has beenproposed to keep this out of the GST umbrella for at least the first two years, which means petroleum prices aren’t likely to change with the advent of GST and the variance in prices across states could also continue.  Prices of goods may not be completelyuniform across states as there is talk of allowing states to have 1-2% variance in tax. Let’s assume that if the median GST rate is 20% and the
  • 41. 41 Centre applies 10%,for the remainder, the states may be allowed, say, a range of 9-11% levy.  Service tax is 14% currently. If GST is implemented,this rate will increase (given the expectation that GST will be 18-22%) making services more expensive GST will affectevery part of your business in India with regards to cash flow, costing of capital, pricing of products and services,financial reporting, tax accounting, compliance processes,supplychain, procurements and contracts and all technologycurrently enabling this ecosystem.In addition, there will be significant training needs for personnelto understand and operate effectivelyunder this new regime. The transition to GST will have to be managed in a phased manner and will require proactive and timely planning. Companies will have to start by understanding key areas of impact to their business modeland prepare differentscenarios for the design and application of GST. Implementationof changes will have to be managed through robust program management across various companystakeholders in the entire value chain.
  • 42. 42 Summaryof keybusinessimpacts: Sourcing  Inter-State procurementcould prove viable  This may open opportunities to consolidate suppliers/vendors  Additional duty/CVD and SpecialAdditional duty components of customs duty to be replaced. Distribution  Changes in tax system could warrant changes in both procurementand distribution.
  • 43. 43  Current arrangements for distribution of finished goods may no longer be optimal with the removal of the concept of excise duty on manufacturing  Current network structure and product flows may need review and possiblealteration Pricing and profitability  Tax savings resulting from the GST structure would require repricing of products  Margins or price mark-ups would also need to be re-examined Cash flow  Removal of the conceptof excise duty on manufacturing can result in improvement in cash flow and inventory costs as GST would now be paid at the time of sale/supply rather than at the time or removal of goods from the factory. System changes and transaction management  Potential changes to accounting and IT systems in areas of master data, supply chain transactions, system design.
  • 44. 44  Existing opentransactions and balances as on the cut-off date need to be migrated out to ensure smooth transition to GST  Changes to supply chain reports (e.g., purchase register, sales register, services register), other tax reports and forms (e.g., invoices, purchase orders)need review  Appropriate measures such as training of employees,compliance under GST, customer education, and tracking of inventory credit are needed to ensure smoothtransition to the GST regime
  • 45. 45 Expectation from various other sectors Benefits of GST- For the Centre and the States: According to experts, by implementing the GST, India will gain $15 billion a year. This is because it will promote more exports, create more employmentopportunities and boostgrowth. It will divide the burden of tax between manufacturing and services. For individuals and companies: In the GST system, taxes for both Centre and State will be collected at the point of sale. Both will be charged on the manufacturing cost. Individuals will be benefited bythis as prices are likely to come down and lower prices mean more consumption,and more consumption means more production, thereby helping in the growth of the companies. General points on Various Business Sectors that arise after GST implementation:-  Real Estate Industry: Construction and Housing sector need to be included in the GST tax base being high tax revenue generating sector and for reduction in no. of tax legislations involved.  FMCG Sector: Implementationof proposedGST and opening of Foreign Direct Investment (F.D.I.) are expected to fuel the growth and raise industry’s size.  Rail Sector: There have been suggestions for including the rail sector under the GST umbrella to bring about significant tax gains and widen the tax net so as to keep overall GST rate low. This will have the added benefit of ensuring that all inter–state transportation of goods can be tracked through the proposed Information technology (IT) network.
  • 46. 46  Information Technology enabled services: At present, if the software is transferred through electronic form, it should be considered as Intellectual Property and regarded as a service and if the software is transmitted on media or any other tangible property, then it should be treated as goods and this classification is full of litigation. As GST will have uniform rate for Goods and Services and no concept of state revenue being VAT or central revenue being service tax and hence, the reduction in litigation.  Transport Sector: Truck drivers spend more than half of their time while negotiating check post and tolls. At present there are more than 600 check points and more than ton types of taxes in road sector. After the introduction of GST, the time spend by the road transport industry in complaining with laws will reduce and service is going to be better which will boost the goods industry and thus the taxes also.  Impact on Small Enterprises: There will be three categories of Small Enterprises in the GST regime.  Those below threshold limit of Rs.1.5 Crores would not be covered.  Those between the threshold and compositionturnovers will have the option to pay a turnover based tax i.e. composite tax or opt to join the GST regime.  Those above threshold limit will need to be within framework of GST. Possible downward changes in the threshold in some States consequent to the introduction of GST may result in obligation being created for some dealers.
  • 47. 47 Status of implementation of GST To be fully viable by law in all the States, the GST Bill needs to be passed by a two-thirds majority in both Houses of Parliament and by the legislatures of half of the 29 States. In December2014,Finance Minister Arun Jaitley introduced the constitutional amendmentBill of the GST in the Lok Sabha. He announced that the GST would be a major reform in India’s taxation system since 1947,which would reduce transaction costs for business and boostthe economy. Earlier, the Bill was rejected by a few States saying that it does not include the issues of compensation,entry tax and the tax on petroleum products.Jaitley while introducing the Bill said that all efforts have been taken to make sure that the States do not sufferany loss of revenue with the implementation of the GST. The States will receive Rs 11,000 crore this fiscal year so that it would compensate the losses sufferedby them for decline in Central sales tax (CST) and subsequentlyfinancial assistance would be provided for a five-year period. All said and done, the GST Bill which was conceived way back in the year 2000 has not seenthe light of the day as yet. If everything goes well, mostlikely the Bill will be legislated by April 2016.According to a study by the National Council of Applied Economic Research(NCAER), full implementation of the GST could expand India’s growth of gross domestic productby 0.9-1.7 percentage points.By removing the system of multiple Central and State taxes, the GST can help in reducing taxation and filing costs and expand business profitability, thereby attracting investments and promoting GDP growth. Simplificationof tax norms can help in improving tax compliance and increasing tax revenues.
  • 48. 48 India: Current status of India’s proposedGST program • Constitution AmendmentBill passed in the Lok Sabha (Lower House of Parliament) • Union Finance Minister in his press conferencehas assured that effective peak GST rate for India may not be 27%,could be lower than that • Bill now scheduled to be tabled in Rajya Sabha (Upper House of Parliament) for approval, Parliament slated to stay in sessionfor additional two days (till Friday 15 May 2015)to allow time for passage of important Bills (including the Constitution AmendmentBill) Once the Constitution AmendmentBill is passed in the Parliament, it would still need to be ratified by a majority of the State Assemblieswhich is expected to occurduring the Monsoon sessionof respective State Assemblies (ie June-July 2015).After the States have ratified the Bill, the Indian Constitution would be changed to allow Centre and States similar powers to levy indirect taxes on goods and services. Once the Constitution is amended, the GST Council (constituted under the amended Constitution) would release the draft Model GST Bills – the Central GST Bill, the State GST Bill and the Integrated GST Bill. Associated Rulesand Regulations are also likely to be released around the same time together with the proposed schedule of goods and services that are to be taxed at a lower rate of GST. If all goes well, we expectthe Model GST Bills to be published for public consumption around mid-Septemberto early-October2015.
  • 49. 49 Also if not, the Finance Minister Arun Jaitley recently said the government is confidentof the new GST regime to roll out from the next fiscal and expressedconfidence about an early resolution of pending disputes on direct taxes front. While expressing confidence that GST would be passed in the Rajya Sabha as well in the next session,he said it's not necessaryto implementit from April 1, 2016,itself as it is a transactional tax and can come into effectfrom the first date of any other month as well. Parliament panel might propose optionalGST for states.  The panel, to considerits draft report on the Constitution (115th Amendment)Bill on the GST, feelstates should be given enough fiscalspace if the success ofValue Added Tax (VAT) is to be replicated.  To address concerns of the states on revenue loss, the panel might recommend an automatic compensationmechanism, wherein a fund is created under the proposed GST Council. It also wants a study to evaluate the impact of GST on the revenue of states. It could suggesta floor rate with a narrow band, decisionby voting and not consensus in the GST Council, omitting the provision on setting up a Dispute Settlement  The report of the standing committee could be adopted in its next meeting and the finance ministry, after incorporating the panel’s views, would approach the cabinet to presentthe Bill in Parliament with the changes.
  • 50. 50 Conclusion The taxation of goods and services in India has, hitherto, been characterized as a cascading and distortionary tax on production resulting in misallocation of resources and lower productivity and economic growth. It also inhibits voluntary compliance.It is well recognized that this problem can be effectivelyaddressed by shifting the tax burden from productionand trade to final consumption.A well designed destination-based value added tax on all goods and services is the most elegant method of eliminating distortions and taxing consumption.Under this structure, all differentstages of production and distribution can be interpreted as a mere tax pass-through, and the tax essentially ‘sticks’ on final consumptionwithin the taxing jurisdiction. A ‘flawless’ GST in the context of the federal structure which would optimize efficiency,equity and effectiveness.The ‘flawless’ GST is designed as a consumption type destination VAT based on invoice- credit method.
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