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 Goods and Service Tax (GST)
Biggest Indirect Tax Reform In India

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 IMPACT OF FLAWLESS GST

[ Increase in GDP growth by 1.4 to 1.7%

(Annual increase Rs.70,000 Crores at current level)

[ Tax GDP Ratio may go up by 1.5 to 2%

(Net Revenue increase by Rs.60 - 80,000 crores per annum)

[ Overall cost of indigenous goods may reduce by 10%

leading to reduction in price of manufactured goods
[ Significant reduction in tax compliance and
administration cost due to simple uniform structure
[ Horizontal equity at National and Business entity level
Win- win situation for all stake holders

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 WHAT IS GST

[ GST is a comprehensive value added tax on goods and

services
[ GST is levied on value added at each stage of supply
chain. It provides seamless input tax credit throughout
the supply chain
[ Tax to be borne by ultimate consumer. Thus GST is a
destination based consumption tax
[ There is no distinction between goods and service
[ No cascading effect of tax on cost thereby reducing the
tax burden and overall cost with full transparency

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 TAXES PROPOSED TO BE SUBSUMED

[ CENTRAL TAXES:
[ Excise Duty, Additional Excise Duty
[ Service Tax
[ Countervailing Customs Duty, Special Additional Customs Duty
[ Various Cess and Surcharges
[ Excise Duty on products with alcohol (Taxed under M&TP Act)

[ STATE TAXES:
[ Value Added Tax
[ Entertainment Tax (levied by States)
[ Luxury tax,
[ Tax on Lottery, Batting and Gambling
[ Entry Tax (other than for local government)
[ Cesses and Surcharges

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 TAXES NOT TO BE SUBSUMED AS PER E.C.

[ CENTRAL TAXES:
[ Excise Duty on 3 Petroleum Products
[ Excise Duty on Tobacco Products (In addition to GST)

[ STATE TAXES:
[ Tax on Alcoholic Beverages
[ Tax on 3 Petroleum Products
[ Entertainment tax (by local bodies)
[ Entry tax for local bodies
[ Stamp Duty
Finance Commission recommended GST on all the above items
in addition to continuation of excise, except the report is silent
on Entertainment tax levied by local bodies.

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 DECISION YET TO BE TAKEN

EC deferred decision on following taxes:

[ Purchase Tax
[ Electricity Duty
[ Taxes On Natural Gas
[ Taxes / Levies on Textile and Sugar
[ Tax on vehicles and transportation of goods and
passengers

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 TAXABLE EVENT IN GST

[ Taxable event for levy of tax under proposed GST regime

will be ³supply of goods or service´ for consideration
[ Hence the present taxable events such as ³Manufacture´
in case of Central Excise and ³Sale´ in case of VAT or
CST will lose relevance
[ Elaborate rules to determine the place and time of supply
of goods and services will be formulated
[ Branch transfer will be treated as ³supply of goods´
thereby chargeable to GST

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 KEY FEATURES OF GST STRUCTURE

[ Dual GST comprising of Central GST and State GST

[ Comprehensive coverage of supply of goods and
services except few exempted goods and services
[ Similar tax treatment for goods and services
[ Identical tax treatment for inter-state and intra-state
supplies
[ Common classification of goods by Center as well as
all states
[ µNegative definition' of taxable service proposed

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 KEY FEATURES OF GST STRUCTURE

[ Export & Supply to SEZ (Processing area) zero rated

[ Same tax computation base under Central and State
GST hence no cascading impact of taxes
[ Similar compliance for Central & State GST
[ Uniform returns and collection procedure for central
and State GST
[ Cross Credit not allowed between Central GST and
State GST
[ Check post at state boundaries may continue but will
become irrelevant in due course with IGST

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 TAX SPARING OF SME SECTOR

[ Threshold Limit Under Central GST:

EC proposed Rs.1.5 Crore annual turnover for goods.

Finance Commission Task Force suggested Rs.10 lakhs for
CGST for Goods and services

[ Threshold Limit Under State GST:

Gross annual turnover of Rs.10 Lakhs for Goods and Services

[ Composition Scheme:

Gross annual turnover of Rs. 50 Lakhs with a floor rate of 0.5%
across all States

Composition scheme will be optional.

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 PROPOSED GST RATE STRUCTURE

[ Specified goods taxable at a lower rate and other

goods at standard rate
[ Services taxable at single standard GST Rate
[ Precious metal and stones at a very low rate
[ Exemption of few specified products/ services
[ 3 Petroleum Products (Petrol, Diesel, Aviation Fuel),
Liquor and Narcotics will be outside GST
Finance Commission TF recommended single rate 5%
for CGST and 7% for SGST

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 MECHANISM TO TAX INTERSTATE SUPPLIES
Inter-State GST (IGST) Model

[ Centre to levy IGST on all interstate transactions, equal to

Central GST plus State GST.
[ Tax payment by exporting dealer as IGST on value addition
after adjusting credit of IGST, Central GST, State GST
[ The Importing dealer can claim credit of IGST while
discharging his output tax liability in his own state
[ Information return to be submitted to Central agency
[ Central agency to act as a clearing house between Centre
and State Government, verify claims and inform respective
government to transfer the funds

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MECHANISM TO TAX INTERSTATE SUPPLIES..

[ Discontinuation of CST
[ IGST Rate equal to Central GST plus State GST
[ Stock transfers taxable as inter-state sale
[ Positive benefits of IGST Model:
[ Maintains ITC chain
[ No blockage of funds to claim refund from
State Govt.
[ Self policing model
[ Possibility to do away with the check posts

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 EXPORT, SEZ, AREA BASED EXEMPTION &
TAXATION OF IMPORTS

[ Exports will be Zero rated

[ Supplies to Special Economic Zone will be zero

rated as per EC (Finance Commission TF
recommended SGL at par with other sales)

[ Tax benefit of location based Industrial units

would be protected during eligibility period but
will be made GST compatible (e.g. cash refund)

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 TAXATION OF IMPORTS

[ Imports will taxable under CGST and SGST

[ Tax revenue will accrue to state where imported

goods or services are consumed

[ State GST revenue accrues based on destination

principle. Administrative mechanism to collect
SGST at the ports to be determined.

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 )'

FINANCE COMMISSION RECOMMENDATIONS ON ITEMS
NOT COVERED BY EC

[ Full input tax credit for capital goods in the year

of purchase
[ Common Advance Ruling Authority
[ Separate administration for CGST and SGST
[ User charge not to be discontinued
[ Twelve digit PAN based registration number

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 OVERALL BUSINESS IMPACT OF GST

[ GST will create single Indian common market with

supply chain efficiency and scale economy
[ Reduction in compliance cost on simplification of tax
structure and uniform returns/ procedure
[ Export cost will reduce due to zero rating of CGST &
SGST (Annual saving estimated by NCEAR- 24000 to 48000Cr.)
[ Imports parity with indigenous goods will change due to
dual GST
[ Services will bear Duel GST tax incidence
[ Distributive trade will have impact of CGST

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 )(

 BUSINESS ISSUES TO BE ADDRESSED
DURING TRANSITION TO GST

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 TAXATION OF SERVICES IN GST REGIME

[ Negative definition of taxable service: What is

service?
[ Taxation of electronically transmitted inter state
services is a major tax challenge
[ Elaborate rules and procedures required to
determine place of supply of services
[ Few exempted services like primary health,
Education?
[ Services would be taxed at standard rate by CGST
& SGST

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 TAXATION OF SERVICES IN GST REGIME

[ Essential to determine:
[ Mechanism to tax inter-state supply of services
under State GST
[ Taxability in case of Import and Export of services
[ Identification of exempted services
[ Person liable to pay tax under reverse charge
mechanism
[ Taxability in case of services provided in the State of
Jammu and Kashmir

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 +)

 GST TRANSITION ISSUES

[ Transitional Provisions in the GST legislation

[ Un-utilised tax credit carried forward under CENVAT
and State VAT
[ Impact of withdrawing existing product based
exemptions
[ Taxability of works contract and sub-contractor
[ Taxability in case of unregistered dealer
[ Treatment of goods sent for job work or for
temporary services

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 GST TRANSITION ISSUES

[ Refund procedures in the case of Exports, supply to

SEZ and in the case of large capital investment
[ Standardisation of systems and procedures across
states and at national level
[ Issues related to alignment of Accounting and IT
System which can provide required details to avail
full input tax credit and avoid tax losses
[ Issues related to compliance requirements

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 BUSINESS OPPORTUNITIES
AND
CHALLENGES AHEAD«

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 OPPORTUNITIES AND CHALLENGES

[ Opportunities to re-engineer business model and

processes for procurement, manufacturing and
sales/ distribution which is tax efficient
[ Review full supply chain to maintain ITC chain to
avoid any tax losses
[ Ensure availing carried forward unutilised credit
under CENVAT and VAT by preserving documents,
records and complying with procedure
[ Ensure smooth transition by creating awareness
in the organisation about proposed GST regime

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 OPPORTUNITIES AND CHALLENGES

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BANGALORE : KOLKATA : MUMBAI : NEW DELHI

FURTHER DETAILS ON GST DEVELOPMENTS

V Contact ASSOCHAM Secretariat :

-National Committee on Indirect Taxes

V Email: nihal.kothari@khaitanco.com