The Goods and Services Tax (GST) is value added tax on the consumption of the goods, paid by its original producers upon the change in goods or upon the transfer of the goods to its ultimate consumers.GST is proposed to be implemented in India by April 2012. The GST will replace all indirect taxes levied on goods and services by the Indian Central and State governments. It is aimed at being comprehensive for most goods and services with minimum exemptions.
The evolution of Indian service tax & excise tax to VAT was a long drawn process and in that regards going for GST will be a quantum jump in achieving comprehensive indirect tax reforms in India
The Indian government is redrawing tax reforms that will sweep away part of the current VAT system, a variety of state level direct and indirect taxes, excise duties, service tax and entertainment tax and replace them with a single Goods and Services Tax (GST).
The predicted rate for the proposed GST is said to be 20 percent. This should create a national tax standard across the country with consumers paying a single rate of GST across India abolishing all other state and central level taxes, including VAT, excise duty, service tax and luxury tax. The target date for implementation is the 1st of April next year to coincide with the start of the new fiscal year. Customs duty will be levied out of GST and is likely to be replaced by VAT on imports.
Currently, the various Indian states levy VAT at a 4 percent or 12.5 percent rate depending on the type of goods, with excise duty usually levied at 8 percent for most commodities. Services are taxed at 10.3 percent.
India is a federal republic and therefore the GST will be implemented concurrently by the central and state governments as CGST and SGST respectively. The objective will be to maintain a commonality between the basic structure and design of the CGST, SGST and SGST between states.
Announcement to this regard was done in finance budget 2007-2008 by then finance minister P.Chitambram as per which an Empowered Committee of state finance minister was formed to work with the Central Government to prepare a road map for introduction of GST in India. After this announcement, the Empowered Committee of State Finance Ministers decided to set up a Joint Working Group (May 10, 2007), with the then Adviser to the Union Finance Minister and the Member-Secretary of Empowered Committee as Co-convenors and the concerned Joint Secretaries of the Department of Revenue of Union Finance Ministry and all Finance Secretaries of the States as its members. This Joint Working Group, after intensive internal discussions as well as interaction with experts and representatives of Chambers of Commerce and Industry, submitted its report to the Empowered Committee (November 19, 2007).
On the framework of this discussion a final version by Empowered Committee was prepared seeking comments from government of India. These comments where duly recorded and where sent to states Finance and tax heads for consideration. Later a team of concerned official from states and representatives of Gov of India submitted their final draft on structure of GST. An important interaction has also recently taken place between Shri Pranab Mukherjee, the Union Finance Minister and the Empowered Committee (October 19, 2009) on the related issue of compensation for loss of the States on account of phasing out of CST.
Salient features of the GST model
Salient features of the proposed model are as follows:
(i) The GST shall have two components: one levied by the Centre and the other levied by the States. Rates for Central GST and State GST would be prescribed appropriately, reflecting revenue considerations and acceptability. This dual GST model would be implemented through multiple statutes (one for CGST and SGST statute for every State).
(ii) The Central GST and the State GST would be applicable to all transactions of goods and services made for a consideration except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits.
(iii) The Central GST and State GST are to be paid to the accounts of the Centre and the States separately. It would have to be ensured that account-heads for all services and goods would have indication whether it relates to Central GST or State GST (with identification of the State to whom the tax is to be credited).
(iv) Since the Central GST and State GST are to be treated separately, taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST. A taxpayer or exporter would have to maintain separate details in books of account for utilization or refund of credit
(v) Cross utilization of Input Tax Credit between the Central GST and the State GST would not be allowed except in the case of inter-State supply of goods and services under the IGST model.
(vi) Ideally, the problem related to credit accumulation on account of refund of GST should be avoided by both the Centre and the States except in the cases such as exports, purchase of capital goods, input tax at higher rate than output tax etc. where, again refund/adjustment should be completed in a time bound manner.
(vii) To the extent feasible, uniform procedure for collection of both Central GST and State GST would be prescribed in the respective legislation for Central GST and State GST.
(viii) The administration of the Central GST to the Centre and for State GST to the States would be given. This would imply that 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.
(ix) A uniform State GST threshold of gross annual turnover of Rs.10 lakh both for goods and services for all the States and Union Territories may be adopted with adequate compensation for the States (particularly, the States in North-Eastern Region and Special Category States) where lower threshold had prevailed in the VAT regime.
(x) The States are also of the view that Composition/Compounding Scheme for the purpose of GST should have an upper ceiling on gross annual turnover and a floor tax rate with respect to gross annual turnover. In particular, there would be a compounding cut-off at Rs. 50 lakh of gross annual turn over and a floor rate of 0.5% across the States. The scheme would also allow option for GST registration for dealers with turnover below the compounding cut-off.
(xi) The taxpayer would need to submit periodical returns, in common format as far as possible, to both the Central GST authority and to the concerned State GST authorities.
(xii) A tax payer 13 digit identification number will be issued . This would bring the GST PAN-linked system in line with the prevailing PAN-based system for Income tax, facilitating data exchange and taxpayer compliance.
(xiii) To make it simpler for tax payer, functions such as assessment, enforcement, scrutiny and audit would be undertaken by the authority which is collecting the tax, with information sharing between the Centre and the States.
On application of the above principles, it is recommended that the following Central Taxes should be, covered under the Goods and Services Tax: (i) Central Excise Duty (ii) Additional Excise Duties (iii) The Excise Duty levied under the Medicinal and Toiletries Preparation Act (iv) Service Tax (v) Additional Customs Duty, commonly known as Countervailing Duty (CVD) (vi) Special Additional Duty of Customs – 4% (SAD) (vii) Surcharges.
(viii) Cesses.Following State taxes and levies would be, to begin with, subsumed under GST: (i) VAT / Sales tax (ii) Entertainment tax (unless it is levied by the local bodies). (iii) Luxury tax (iv) Taxes on lottery, betting and gambling. (v) State Cesses and Surcharges in so far as they relate to supply of goods and services. (vi) Entry tax not in lieu of Octroi.
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