B.Com (H), A.C.A., D.I.S.A.
– Views of State Governments on GST.
Value Added Tax was introduced in Indian tax structure way back in 2003 and even today not every state has implemented this tax. Small and medium enterprises (SME) have also not been well settled with VAT law and our government has taken over the task of introducing new statutes for implementation of Goods and Services tax.
Empowered Committee has released first discussion paper on 10 November, 2009 discussing and explaining various provisions of the proposed GST scheme.
2. Reasons for requirement of new legislation
Empowered committee has proposed the introduction of Goods and Services tax (‘GST’) in India. With its introduction overall burden of indirect tax would be reduced. Following are the reasons given by empowered committee for introduction of GST in India.
There is a burden of “tax on tax” in the pre-existing system of indirect tax laws of India, as both the CENVAT and the State VAT have certain degree of incompleteness.
(a) The incompleteness in CENVAT is that it has yet not been extended to include chain of value addition in the distributive trade below the stage of production. It has also not included several central taxes, such as additional excise duties, additional customs duty, surcharges etc. in the overall framework of CENVAT.
(b) At present there are several State taxes applicable such as, luxury tax, entertainment tax, etc. which have still not been subsumed under VAT and hence credit chain is broken in this respect.
With the introduction of GST a continuous chain of set-off from the original producer’s point and service provider’s point upto the retailer’s level would be established which would eliminate the burden of all cascading effects, including the burden of CENVAT and service tax.
Major Central and State taxes will get subsumed into GST which will reduce the multiplicity of taxes, and thus bring down the compliance cost. Following Taxes are proposed to be subsumed under GST:
(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
(vi) Countervailing Duty
(vii) Special Additional Duty of Customs
(viii) Surcharges and Cesses.
(ix) Value Added Tax
(x) Central Sales Tax
(xi) Entertainment tax (unless it is levied by the local bodies)
(xii) Luxury tax
(xiii) Taxes on lottery, betting and gambling.
(xiv) State Cesses and Surcharges in so far as they relate to supply of goods and services.
(xv) Entry tax not in lieu of Octroi.
GST would be charged in the form of 2 taxes:
(a) Central GST – Levied by Centre;
(b) State GST – Levied by individual states
This dual model of taxation would be implemented through multiple statutes i.e. one for Central Government and one for each State Government.
The basic provisions of law such as chargeability, taxable event, taxable person, measures of levying including valuation, basis of classification etc. would be almost uniform across all Central as well as State taxation mechanism.
Central GST and State GST would be applicable to all transactions of goods and services made for a consideration.
4. Tax rates
State GST for goods would have two-rate tax structure:
(a) Lower rate – for necessary items and goods of basic importance;
(b) Standard rate – for other goods in general.
It is most likely that State GST and Centre GST for services would have only one tax rate.
Working Paper No.1/2009-DEA on GST Reforms and Intergovernmental Considerations in India issued by the Department of Economic Affairs, Ministry of Finance, Government of India in the month of march, 2009: It was suggested that GST would need to be levied at a combined Centre-State tax rate of 20%, of which 12% would go to the Centre & 8% to respective State.
(a) Export of services and goods would be tax neutral even under GST i.e. neither Centre GST nor State GST is proposed to be levied on export transactions.
(b) Tax exemption benefits would also be given to Special Economic Zones (‘SEZ’). However, such benefit will only be allowed to their processing zones. No tax benefits would be allowed on sales made from an SEZ to Domestic Tariff Area.
(a) Transactions of import of goods or services would be exigible to Centre GST as well as State GST.
(b) Full set-off allowed on GST paid on import of Goods & Services. This would be welcomed by importers as earlier credit of certain import duties was not allowed.
7. Tax credit
Credit would admissible in respect of both the two components GST i.e. Central GST & State GST. Scheme of tax credit would be as follows:
(a) Taxes paid against the Central GST shall be allowed to be taken as input tax credit for the Central GST and could be utilized only against the payment of Central GST.
(b) Taxes paid against the State GST shall be allowed to be taken as input tax credit for the State GST and could be utilized only against the payment of State GST
Centre would levy Integrated Goods & Services Tax (‘IGST’) which would be Central GST plus State GST on all inter-State transactions of taxable goods and services. The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, Central GST, and State GST on his purchases. The Importing dealer will claim credit of IGST while discharging his output tax liability in his own State.
Each tax payer would be allotted a PAN linked tax payer identification number of 13/15 digits, which would bring the GST PAN linked system in line with the current PAN based income tax system, facilitating data exchange and tax payer compliance.
Tax payer would also be required to maintain separate accounts for Central GST and State GST for payments and set-offs.
Tax payers would submit one periodical return for both Central GST and State GST and one copy each will be submitted with the Central GST authority and State GST authority. Business processes of Central GST & State GST should be uniform.
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