Frequently Asked Questions (FAQs) on GST and their answers which would help the readers to know and understand about the concept and nuances of proposed Goods and Services Tax (GST) and its models.
These FAQs have been compiled with sole objective of providing a means of better understanding of GST. For details, readers may refer to Government portals / literature.
Q.37 In GST regime, Information Technology network will be crucial as most of the procedures would be automated. How it will be done?
Well-designed and well-functioning Information Technology (IT) infrastructure facility would be a precondition and pre-requisite for smooth administration of taxpayers, processing of returns, controlling collections, making refunds, auditing taxpayers, levying penalties etc. in the new regime. On the IT front, all stakeholders had agreed for a common PAN-based taxpayer ID, a common return, and a common challan for tax payment and therefore a common portal providing three core services (registration, returns and payments) would ease compliance. It also stated that the information technology preparedness of states must be improved. Further, the IT infrastructure, unified tax credit clearing mechanism may be put in place.
The GSTN is the comprehensive back end infrastructure network for the management of tax data and reporting of the GST. The Committee noted that the Non Government shareholding in GSTN is dominated by private banks, and this is not desirable. It recommended that the Non Government Institutional shareholding be limited to public sector banks and financial institutions.
GSTN was incorporated on 28 March 2013 under Section 25 of the Companies Act, 1956 (as non-Government, not-for-profit, private limited Company) promoted jointly by Central and State governments (refer Table 5 below). GTSN has a self-sustaining revenue model, based on levy of user charges on tax payers and tax authorities availing its services. The GSTN will provide a front end portal to administer the Inter – State Taxation (IGST). The above network will work as a clearing house mechanism which will pool all the information about taxes levied on the Inter-State transactions and provide data on the amounts to be transferred to the destination state for ensuring seamless input tax credit.
GSTN has been entrusted with the responsibility to develop, operate and maintain a common GST portal which would provide a common and shared IT infrastructure between Central and State Governments, Banks, CBEC, Reserve Bank of India etc. For the purpose of simplicity for taxpayer, uniformity of tax administration, it is also proposed to have digitization of all documents and automation of related processes such as common PAN-based registration; common standardized return for all taxes (with different account heads for CGST, SGST, IGST); common standardized challan for all taxes (with different account heads for CGST, SGST, IGST) etc. Each tax authority will have full flexibility in using this data for in-house automation, integration, and enforcement.
Q.39 It is understood that under GST regime some states shall be benefitted by one percent additional tax. What is this tax ?
Ans. An additional tax (not to exceed 1%) on the supply of goods in the course of inter-state trade or commerce would be levied and collected by the centre. Such additional tax shall be assigned to the states for two years, or as recommended by the GST Council.
The net proceeds of additional tax on supply of goods in any financial year, except the proceeds attributable to the Union territories, shall not form part of the Consolidated Fund of India and be deemed to have been assigned to the States from where the supply originates.
Manufacturing states such as Maharashtra and Gujarat have demanded they be allowed to levy two per cent additional tax over and above the state GST rate, though no decision had been taken on this. For a decision, this provision also requires a two-third majority in the Empowered Committee.
However, Sub-committee on GST rates headed by CEA( MOF) has not found favour with proposed additional tax.
Q.40 Are there any disadvantages of additional tax ?
Ans. The 1% tax will increase cost of inter-state job work of goods. The 1% tax will increase cost of inter-state transactions and hence, to that extent, will discourage inter-state movement of goods. Thus, it will be hindrance to inter-state movement of goods. It is yet to be seen whether 1% additional tax will be imposed only at the initial movement from originating State or at each inter-state movement of same goods.
Q.41 Will cross utilization of credits between goods and services be allowed under GST regime?
Ans. Cross utilization of credit of CGST between goods and services would be allowed. Similarly, the facility of cross utilization of credit will be available in case of SGST. However, the cross utilization of CGST and SGST would generally not be allowed except in the case of inter-State supply of goods and services under the IGST model which is explained in answer to the next question.
Q.42 How can the burden of tax, in general, fall under GST?
Ans. The present forms of CENVAT and State VAT have remained incomplete in removing fully the cascading burden of taxes already paid at earlier stages. Besides, there are several other taxes, which both the Central Government and the State Government levy on production, manufacture and distributive trade, where no set-off is available in the form of input tax credit. These taxes add to the cost of goods and services through “tax on tax” which the final consumer has to bear. Since, with the introduction of GST, all the cascading effects of CENVAT and service tax would be removed with a continuous chain of set-off from the producer’s point to the retailer’s point, other major Central and State taxes would be subsumed in GST and CST will also be phased out, the final net burden of tax on goods, under GST would, in general, fall. Since there would be a transparent and complete chain of set-offs, this will help widening the coverage of tax base and improve tax compliance. This may lead to higher generation of revenues which may in turn lead to the possibility of lowering of average tax burden.
Q.43 In case of transfer of business (change in the constitution), whether the input tax credit would be available to transferee?
Ans. Where there is a change in the constitution of a taxable person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provision for transfer of liabilities, the said taxable person shall be allowed to transfer the input tax credit that remains unadjusted in its books of accounts to such transferred, sold, merged, demerged, leased or amalgamated business in the manner prescribed.
Q.44 If any loss to states arises due to the introduction of GST , would such loss be compensated?
Ans. Yes, Clause 19 of Constitution Amendment Bill , 2014 states that Parliament may provide for compensation to states for such loss of revenue from the introduction of goods and service tax which may extend to five years. The Select Committee of Rajya Sabha has recommended that the wording should be ‘for a period of five years’. Thus, compensation to States for loss of revenue on account of introduction of GST will be for five years.
Q.45 What has been the experience of other countries with GST?
Ans. Over 160 countries have introduced GST in some form. It has been a part of the tax landscape in Europe for the past 50 years and is fast becoming the preferred form of indirect tax in the Asia-Pacific region. It is interesting to note that there are over 40 models of GST currently in force, each with its own peculiarities. While countries such as Singapore and New Zealand tax virtually everything at a single rate, Indonesia has five positive rates, a zero rate and over 30 categories of exemptions.
In China, GST applies only to goods and the provision of repairs, replacement and processing services. It is only recoverable on goods used in the production process, and GST on fixed assets is not recoverable. There is a separate business tax in the form of VAT. At the same time, it must be noted that GST is a more structured and transparent form of indirect taxation. It has proven itself as the most efficient and effective method of providing revenues that government need, while encouraging economic growth and efficiency.
Q.46 Which countries follow the methodology of Dual GST ?
Ans. Presently Canada is the only country which follows the dual GST model. India is likely to follow the same because of its federal structure.
Q.47 Which is the latest country to introduce GST ?
Ans . The latest country to introduce GST is Malaysia where GST has been levied w.e.f. 1st April, 2015.
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