Goods & ST (GST), Concept & Impact

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Hearty credits to the author of this article :-

Samarth Jain – Author

GST is the biggest reform proposed in the Tax Regime of our country after Independence. It is something that each of us must understand as it is going to affect our lives in a very significant manner.

PRESENT INDIRECT TAX STRUCTURE

First we need to understand the present indirect tax system. There are endless taxes in the present system. Few of them have been levied by the Centre and rest levied by the States. Govt. draws the power to levy Tax from the constitution. There are many shortcomings in the Present Indirect Tax structure. We will be discussing them now:

Excise is levied on the manufacturing of products &its credit is not available against liability of VAT. VAT is charged on the value of Excise. Thus causing cascading effect i.e. Tax on Taxes.

Because of the multiple barriers our Logistics efficiency is very low as the trucks have to wait in long queues to get the permit to enter in different states. Our trucks travel on an average of just 260 kms in a day as compared to the average of 440 kms in a day in European nations and 660 kms in America.

There are multiple taxable events existing in our present system. As for excise it is manufacturing of Goods whereas for Sales Tax it is Sale of goods & Service Tax gets levied on the provision of Services.

Because of multiplicity of Taxes there is a high cost of compliance for both assesses as well as for the Govt.

Because of different legislations involved, there are different meanings assigned for the same term. All these shortcomings lead us to adapt a new system of Taxation for ease of doing the business and for the seamless flow of credit across the whole supply chain.

ROAD TO GST

As we have discussed just before, that the Govt. draws the power to levy the tax from the constitution. Hence we require a constitutional amendment for empowering the govt. to levy the Tax on concurrent basis as in the proposed GST model, Both the Central and State govt. will levy tax on a common base.

This GST amendment Bill has already been passed in the Lok Sabha. Right now it is with a Select committee 0f Rajya Sabha which is going to submit its report by the last working day of the first week of the Monsoon session. Then it is required to be passed in the Rajya Sabha by the 2/3rd of the members present and voting. Then the bill needs to be passed in atleast 15 states legislatures by a way of simple majority. Then it will be sent to the President for his approval. Then the legislature bill will be put in the parliament and state legislatures and after its approval there, it will become a law. Its expected roll out date is 1st April, 2016.

WHAT IS GST?

GST is going to be a destination based tax. It will be charged on the supply of Goods and Services. Since the word used is supply, hence the Branch t/f and Stock T/f will also be covered under the ambit of GST. Alcoholic liquor for human consumption is going to be kept outside the ambit of GST.

TAXES THAT WON’T BE SUBSUMED IN GST

There will be no term like trader or provider of Service any more. Everything will get covered under the term “Supply”. Except these taxes. All indirect taxes will get subsumed under GST… 1) Customs duty 2) Excise duty on Tobacco products 2)specific cess 3)taxes on liquor 4)Electricity Cess 5)Property tax 6)Toll tax (7) Stamp Duty.

SALIENT FEATURES OF GST

The dual GST model shall have two components i.e.  Central GST and State GST. There will be two parallel Statutes –one at the Centre and other under the respective State GST Act –governing the tax liability of the same transaction.

The existing CST will be discontinued. Instead, a new statute known as IGST will come into place. It will empower the CG to levy and collect the tax on the inter-state transfer of the Goods and Services. Rate of IGST will roughly be equal to the sum of CGST and SGST.

Taxable event will shift from Mfg. or Sale of Goods or Provision of services to “Supply of Goods and Services”.

GST on export would be zero rated. Both CGST and SGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed.

Full and complete set-off will be available on the GST paid on import of goods and services. After introduction of GST, all the traders will be paying both the types of taxes i.e. CGST and SGST. The rules for taking and utilization of credit for the Central GST and the State GST would be aligned.

The taxpayer would need to submit common format for periodical returns, to both the Central and to the concerned State GST authorities. Revenue from interstate transactions to accrue to the destination state and not to the Origin state.

Under GST, registration is likely to be linked with the existing PAN. The new business identification number is likely to be the 10-digit alphanumeric PAN, in addition to two digits for state code and one or two check numbers for disallowing fake numbers. The total number of digits in the new number is likely to be 13-14.

It is estimated that the Government will keep the rate somewhere in between from 16% to 27%. This represents the aggregate of CGST and SGST payable on a transaction. There with be a 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.

INPUT UTILIZATION

Cross utilization of CGST and SGST credit not permitted except under IGST.

SALIENT FEATURES OF 122ND CONSTITUTIONAL BILL

The Centre will compensate States for loss of revenue arising on account of implementation of the GST for a period up to five years. A provision in this regard has been made in the Amendment Bill. The compensation will be on at appearing basis, i.e., 100% for first three years, 75% in the fourth year and 50% in the fifth year.

It is proposed that Central Government would levy and collect an additional tax at threat of not more than one percent, in respect of the supply of goods in course of inter-state trade or commerce. The tax is proposed to believe for a period of 2years.

The additional tax would be collected by the Centre and would be apportioned to the state from where the supply originates. The additional tax would be non- vatable.

GST COUNCIL:

A new Article 279A is proposed for the creation of a Goods & Services Tax Council which will be a joint forum of the Centre and the States. This Council would function under the Chairmanship of the Union Finance Minister.2/3rd Representatives will be that of State & 1/3rd of the Centre. All decisions will require 75% of the votes. Thus, practically, any decision in GST Council cannot be taken without consent of Union Government. It will have statutory powers only in following situations:

(a) When petroleum products should be brought in the GST net

(b) Distribution of revenue of IGST and CGST among Union and States

(c) Continuation of 1% tax on supply of goods inter-state

(d) Compensation to States for loss of revenue for period up to five years.

The Council will make recommendations to the Union and the States on important issues like tax rates, exemptions, threshold limits, dispute resolution modalities etc.

Thus in nutshell, we can say Excise and Service Tax will be known as CGST. CST will be known as IGST. In case of imports from outside India, in place of CVD and SAD, IGST will be charged.

BENEFITS OF GST:

There are many benefits of GST. These can be categorised under the following categories.

1) For economy 2) Consumer 3) Govt. 4) Business and industry.

Industrialists and tax experts are very positive about GST. This we can make out from the following statements:

Crisil Agency claims that GST implementation will reduce logistics cost for companies by up to 30% over 3-4 years due to savings in warehousing cost and elimination of check posts.

Industrialist Adi Godrej said India’s GDP could grow over 10% if GST rolls out by April 2016. He added: “This will be extremely good for the economy and our businesses will benefit a lot.”

Mr Aulbur, the Managing Director of Mercedes Benz India, said: “If GST is properly implemented, then it will have a double positive impact on the industry.

HOW GST WILL AFFECT THE BUSINESSES?

Once GST comes into picture, it is expected that the businesses will get affected in a significant way.

The costing of the products, thus their prices and margins will get affected significantly.

Since the multiple state barriers will be eliminated, hence Supply-chain management will get affected very positively. Time taken to transfer the goods from one state to the others will get reduced and thus affect the way logistics are planned currently.

We would be requiring change in the IT infrastructure and the software’s for computing GST and complying with the same.

DRAWBACKS OF CURRENT GST SYSTEM

The currently proposed GST system has some shortcomings as well. Modisarkar’s GST bill keeps taxes on alcohol, electricity and real estate outside the scope of GST. Taxes on petroleum also are out of GST’ scope to begin with, but here at least, the bill provides for their inclusion after approval of the GST Council. No such flexibility has been provided for taxes on alcohol, electricity and real-estate, which are important sources of revenue.

The GST bill provides for a 1% additional tax on interstate trade or commerce.

We still do not know what their venue-neutral GST rate will be Preliminary indications are that GST rate will be at around 27%.This is a recipe for economic disaster.

Incidentally, India will be the only country in the world to have a dual-GST system, comprising a central GST and a state GST. The best systems elsewhere are based on a single GST model.

CONCLUSION

All the shortcomings of the present taxation regime lead us to develop a new system of Taxation for the ease of doing business and for the seamless flow of credit across the whole supply chain. If we have been following some system that is now obsolete for years, it does not means that we need to continue with it in the fore coming years as well

There is a criticism today that the proposed model of GST is fractured due to the compromises. But the compromised model in any case would be better than no model at all. Also the bitter truth is that a compromise often becomes necessary in Federal democracies.

The dual model will be like a joint venture between centre and the 29+ states. In order to make this joint venture successful, one has to take all the states on the board with the compromise this entails. Some states might lose revenue after introduction of GST but you cannot hold entire country hostage because of one or two such states. One should keep in mind that an ideally perfect GST has never been practised in any federal democracy.

Every expert was once a beginner. No full proof can be developed in a single stroke. Over the years things may come out to be very positive and it’s quite possible that the estimate of 1-2% rise in GDP might be too low.

23 Replies to “Goods & ST (GST), Concept & Impact”

  1. MOHANASUNDARAM.G says:

    Goods – Service tax up-date in our system if change in india.

    1. Admin says:

      Hello.
      Most of the indirect taxes which you must be following shall be merged into GST. Right now there is no By-law, but shall be available soon as and when GST in India progresses.

      Thanks! Keep visiting.

  2. MOHANASUNDARAM.G says:

    Goods Service Tax Details request

  3. Himank Arora says:

    A mindblowing article…Really learned a lot about GST…Thanks …keeep updating…

  4. Ishabi K A says:

    That was really helpfull.
    i have a doubt, additional duty of CVD and SAD are covered under GST. But basic customs suty is not covered. Suppose if we import a product, do we have to pay the basic import dutyas per present tax system and CVD/SAD based on GST….?

    1. D S Agarwala says:

      Basic Custom duty is not being subsumed in GST. Hence, will continue to be levied as per existing practice. No more CVD/SAD as these are being subsumed in GST.

  5. Milan Patnaik says:

    A very well informed piece of article.Learnt a lot.Thank you.

  6. Yogesh Kumar says:

    Very useful information.

    Do you have sample invoice template to be look like under GST???

  7. P S Nath says:

    An interesting question on GST who are planning to buy vehicle from different state and want to transfer and re-register the vehicle in his name in different state where he lives. Assuming a scenario stated under…..

    A car which was purchased in 2010 by Person X (First Purchaser) in the State A and given road tax for 10 years in the State A itself. A Person Y (Second Purchaser) resides in State B and wants to purchase the vehicle, transfer and re-register the vehicle in his own name in State B. So the vehicle age is 6 Years and Person X already paid rod tax for 10 years in State A.

    Now the question…
    1. After roll out of GST how much amount of Tax need to be paid by Person Y while transfer and re-register the vehicle in State B?
    2. How GST is beneficial/applicable in this scenario?
    3. What would be tax rate and on which cost the tax would be calculated?

    1. Admin says:

      Welcome to GSTIndia.com
      1. After GST roll out, capital goods will be having its own formula to deal with. Am sure it will be a clear one. The barriers between the states will go away.
      2. Beneficial for revenue department as lot of unorganized sectors will be answerable in the activity. And yes the end user will get a clear direction of taxes paid.
      3.Rate of tax is undefined as of now.

      Hope the experts give this a look as well. !!

  8. jeeja haridas says:

    Thank you .For beginner like me it helped a lot.I had a vague picture of GST in my mind, but after reading your article i got a clear idea.
    Thank you once again.

  9. K.R. JHARIA says:

    But reform and benefits not pass on to consumers of the country, last time in 2000, VAT reforms came in india, many commodities rate of tax reduced but that reduction not reflected in consumer prizes.

  10. K.R. JHARIA says:

    raw material for manufacturer gone 0 rated, but goods cost not reduced by manufacturer, thats means all benefits gone to the manufacturer and traders pockets

  11. K.R. JHARIA says:

    in VAT resime, manufacturer benefited double time of taxes, they shown fixed assets cost with tax and claim depreciation on VAT amount and then again claim ITR on fix assets from STATE Govt. too. one tax amount and two time claim to the manufacturer

    1. Admin says:

      Hello,
      Thanks Jharjia ji,for your valuable insights on VAT with current scenarios. All those areas mentioned by you are certainly grey areas, where current tax structure lags. Hope GST bridges out the gap.

      Keep visiting,Bye

      1. Jasdeep kaur says:

        Those indirect taxes which are outside the purview of GST like Alcoholic liquor for human consumption, toll taxes will be dealt by the State Govt. in the same manner as of now??
        What is the meaing of Central GST and State GST?

  12. Mr. Bhat says:

    No use of GST as Petroleum is kept outside GST were maximum taxation is charged in today’s scenario it is no more luxury Think of various field workers in sales and service which become pray to high petroleum cost

  13. SIDDHARTH SHARMA says:

    Does GST will effect the Accounting System in Future.
    Like IS there Will Be Any benefit to the CA, Tax Practitioner or Normal Accountants.
    Is there will be any Scope in Accounting Line in Coming Future.

    1. Admin says:

      Accounting will definitely be refined as per the GST Law. The representations will streamline with the return filing procedures of GST and in general there will be a better compliance to accounting. Tax fraternity will definitely have to participate into this sea change and should benefit the overall health of the business and profession. Thanks for an interesting comment to be asked and thought!

  14. Anonymous says:

    In which list does the GST comes under(central, state, union) ?

  15. Rajendra Mane says:

    Can DTL( Tax Consultant) make GST payment on behalf of Client

  16. Rishabh Jain says:

    Since annual turnover limit is set to Rs 20 Lakh for Uttar Pradesh, does it mean any establishment with less than this turnover do not have pay any GST? Also, does calculation of annual turnover include both purchase and sale or only sale?

  17. Giriraj Chandak says:

    I have purchased a property in 2017 when service tax was applicable now there is a change in tax slab from 4.50 percent to 12 percent which type of tax should I have to pay 4.50 or 12 percent for the balance payment.

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