Dr. Sanjiv Agarwal
Q.1 What does GST seeks to achieve?
Ans. GST is a major indirect tax reform in India which takes VAT to its logical conclusion. GST would avoid burden of multiple taxation (tax on tax) with a cascading effect. GST seeks to rule out cascading tax effect. Once it introduced, CST will also be removed.
Q.2 What is going to be the GST rate structure?
Ans. The first discussion paper has outlined the rate structure and thresholds for goods & service in detail. It has prescribed four rates for goods under state GST (SGST) and suggested similar model under Central GST (CGST). Businesses with an annual turnover of over Rs 10 lakh and over Rs 1.5 crore will have to pay SGST and CGST respectively. For services, it has outlined a single rate at the state and central level However, no clarity exists in view of divergence among various states.
Q.3 What is the general approach to proposed GST?
Ans. The Government has decided to have a two tier or dual GST to be levied by centre as well as states and that there is going to be a phased approach to GST after initial and periodic review depending upon revenue collection, losses to state if any, level of tax compliance, outgo on account of compensation to states etc.
Q.4 What are the indirect taxes which are not going to be merged in GST?
Ans. Initially, it is proposed that only few indirect taxes at state level will be subsumed in GST and the following taxes may not be absorbed by GST which are levied by some states-
– Purchase tax
– Octroi duty (not being entry tax)
– Stamp duty
– Toll tax
– Passenger tax
– Road tax
– Mining cess/ royalty
– Electricity cess
– Tax on pertrolem products
– Tax on tobacco products
– Excise duty on alcoholic beverages etc
Thus , while GST would take care of VAT/ sales tax, entertainment tax, luxury tax, entry tax, state cess/ surcharge, tax on lottery / games etc, many other taxes would continue for the time being alongside the GST. Thus, even after subsuming the major tax, not all taxes could be subsumed in GST.
Q.5 How is GST going to be administered?
Ans. The GST is likely to be administered by a separate body at central level and at states level. The joint working group for constitutional amendment will suggest the possible tax administration. It could be a two tier structure wherein there is a main inter-state body and a second body, which is a smaller representational body of states. In this, members of states may represent on a rotational basis to avoid it from being too big.
It is expected that this body will be independently set up which will derive its authority and power from the constitution itself. It would be premature to state any thing further on this issue, for the present.
Q.6 What shall happen to Service tax? Who will levy Service tax?
Ans. Presently, service tax is levied as a central indirect tax by the Central Government since 1994 under the authority of the Finance Act, 1994. Now, it is proposed to make a constitutional amendment to empower states also to levy tax on services. Infact, GST at the state level is justified to provide additional power of levy of taxation of services for states, set off of cascading burden of cenvat and service tax subsuming service tax in GST. Hence, in GST regime, both, centre and the states will have concurrent power to levy tax on all goods and services. How services will be taxed and who will tax which services or how services will be distributed between centre and states is yet to be disclosed by the government.
Q.7 How intra-state transactions will be subjected to tax under GST regime?
Ans. According to Discussion Paper, in the case of States, the principle for taxation of intra-State and inter-State has already been formulated by the Working Group of Principal Secretaries/Secretaries of Finance/Taxation and Commissioners of Trade Taxes with senior representatives of Department of Revenue, Government of India. For inter-State transactions an innovative model of Integrated GST will be adopted by appropriately aligning and integrating CGST and SGST.
Q.8 At what rate, GST will be levied?
Ans. As already announced by the government, there will be two taxes- central GST (CGST) and state GST (SGST). The discussion paper suggest that there will be following types of GST rates-
(a) for necessary items and goods of basis importance- lower rate
(b) for general goods- standard rate
(c) for precious metals – special rate
(d) exempted items- as per list to be prescribed
(e) single service tax rate.
Thus, we will have at least four different rates. What rates will be announced is not yet known. It is understood that there is no consensus among states for rates. Thus, the exact rate of GST will be known later only but are likely to be between 8 to 16 percent. The average aggregate tax may not exceed 16 percent. However, no clarity exists in view of divergence among various states.
Q.9 How would export be taxed?
Ans. It is expected that exports would be subject to zero rate of tax ,ie, exports would be zero rated for the purpose of GST.
Q.10 How would special economic zones (SEZ) be taxed?
Ans. Like exports, it is expected that SEZ’s would be exempted from levy of GST or tax will be zero rated. The discussion paper clarifies that benefit of zero rated tax shall be available only to the processing zones of the SEZs and benefit to the sales from SEZ to domestic tariff area (DTA) may not be available under GST regime.
Q.11 What happens to various exemptions including area based exemption in present regime under the GST framework?
Ans. It is expected that there would be minimal exemptions and concessions in GST regime. However, since certain exemptions including area based exemptions already in force may extend beyond present regime in GST regime, the tax exemption and incentives will be converted into cash refund schemes after collection of tax, so that the GST chain is not disturbed. While no new exemption would be allowed, existing special industrial area scheme could continue till their expiry time.
Q.12 What shall be the basis of levy of GST in case of inter- state transactions where billing is done on a different basis (say in case of telecom sector)?
Ans. In certain segments such as banking or insurance or electricity, services are provided at one point while service is utilized at various geographic points. At times, services is broken based on certain geographical locations. These should be subjected to integrated GST (IGST).
In case of telecommunication industry, IGST would be adopted as the tax collected will be divided between states and in India telecom circles are presently divided on the basis of telecom circles which may or may not exactly relate to specific states. Also, in case of roaming facility, there will be problem of identifying the user state.
It is therefore, expected that IGST may be levied based on the telecom circles. This is so because at many occasions, the originating state and the end use state for a telecom service would be different. It may therefore, be difficult to decide as to which state would be responsible for administering and collecting the GST. Telecom services will necessarily have to be under IGST. On collection of tax by the respective circle , centre will appropriate the same amongst states. So in case of telecom sector, government may have to adopt a different approach which could be telecom circle or even billing address or place of residence of user etc.
Q.13 How GST shall be payable by taxpayers?
Ans. It is expected that all taxpayers will have to resort to e-payment (electronic payment) of GST and returns shall also be filed in electronic form Each assessee would be having taxpayer’s identification number and credit would also be allowed faster and electronically.
Q.14 Will there be any composition scheme for small traders in GST regime?
Ans. Yes, there is hope that small service providers and businessmen will be provided some relief in GST. Following persons may be liable to pay only state GST-
– manufacturers with turnover upto Rs 1.50 crore
– traders with turnover upto Rs 50 lakhs
– small service providers (limit to be prescribed)
The discussion paper suggests that a composition scheme for such assessees will be notified and no details are proposed in the paper.
Q.15 Presently, centralized registration is allowed in indirect taxes to taxpayers having multi location operations. Whether in GST, there will be provision of centralized registration?
Ans. Though the first discussion paper is silent on the issue of registration (or centralized registration), it is for sure that manufacturers, dealers and service providers will have to obtain registration mandatorily . The registration shall have to be obtained electronically and it is expected that, as in present practice, there may be a provisions for centralized registration. This is going to be as beneficial for both, assessee as will as tax administration.
Q.16 Whether all dealers will have to be information technology conversant under GST regime?
Ans. Yes, ideality also, this should happen in the present age. Under the GST regime, all dealers (including inter state dealers) will have to work on information technology platforms as it is expected tax all the inter state transactions will be fully computerized. Both, dealers and tax authorities will have to gear themselves.
Q.17 What about taxation of tobacco and liquor products under GST?
Ans. The states have decided to have a list of exempted items and alcohol and petroleum products would be kept out of the new taxation regime and the Centre and states would continue to have their own levies on these. This is being done since these items attract high tax rates and provide a substantial portion of government revenue. Interestingly, a decision on whether natural gas would be kept out of GST has not been taken.
Both GST and excise duty would be levied on tobacco products, like cigarettes and gutka. Excise duty would be over and above the CST, with no provision for input tax credit which allows a manufacture to subtract the tax he has already paid on an input from the tax on final product. Credit would, however, be available on the calculation of GST.
Q.18 Will the introduction of GST regime required any constitutional amendment?
Ans. Yes, The amendment is required to allow the Union Government to tax beyond Ute manufacturing stage and allow states to tax services. There will also be separate legislations on central GST and model state GST that would spell out the rates at which the tax would be levied. The process of amending the constitution may take 3-4 months.
Q.19 How will registration of assessees tax place in GST? Will it be linked to PAN of income tax?
Ans. Most likely . The model legislation for the introduction of Goods and Services Tax (GST) will have a provision for registration of individuals and companies which pay the tax. The registration will be done through a uniform PAN-linked business identification number.
The Department of Revenue in the Ministry of Finance had recently sent a proposal to state governments for making the to-digit Permanent Account Number (PAN) the starting point for registering GST payees.
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 a numbers for disallowing fake numbers. The total number of digits in the new number was likely to be 13-14.The GST discussion paper presented by the empowered committee of state finance ministers had earlier said the format of the registration number would be worked out in consultation with the Income Tax Department. This (the number) would bring the GST PAN-linked system in line with the prevailing PAN-based system for 1-T, facilitating data exchange and tax-payer compliance.
By cross-checking payments of income tax with that of GST through the number, evasion could be prevented.
Q.20 Now that all states will have their respective SGST legislations, will all states have similar provisions?
Ans. The Finance Ministers of all states have arrived at a common understanding or consensus that the Central GST and States GST bills will be identical in most parts and will specify thing like what is taxable, the time applicability, how tax will be determined, classification of items and definition of terms like supply.
The Centre and the States are also working on pruning the list of exempted items, the list will be part of the rules and procedures that will be notified by GST laws. There are about 300 items that are exempted from Centre Excise duty and about 100 item from payment of state VAT.
Q.21 Whether tax credits will be available to assessees?
Ans. Yes, The discussion paper specifies that the Credit of CGST would be available for payment of CGST and credit of SGST would be available for payment of SGTS. It is also assured that, in due course, the rules for taking and utilization of credit for the Central GST and the State GST would be prescribed and would be on similar lines. Fortunately, cross utilization of tax credit between the Central GST and the State GST would be allowed in the case of inter-State supply of goods and services under the IGST model.
Q.22 How GST would be advantageous to various stakeholders ?
Ans. The GST at the Central and at the State level will give more relief to industry, trade, agriculture and consumers through a more comprehensive and wider coverage of input tax set-off and service tax setoff, subsuming of several taxes in the GST and phasing out of CST. With the GST being properly formulated by appropriate calibration of rates and adequate compensation where necessary, there may also be revenue/ resource gain for both the Centre and the States, primarily through widening of tax base and possibility of a significant improvement in tax-compliance. In other words, the GST may usher in the possibility of a collective gain for industry, trade, agriculture and common consumers as well as for the Central Government and the State Governments. The GST may, indeed, lead to the possibility of collectively positive-sum game.
Author: Dr. Sanjiv Agarwal, FCA, FCS, ACIS (UK) – Sr. Partner, Agarwal Sanjiv & Company, Chartered Accountants,
Methodology or application of GST ?