CA. RAJAT MOHAN
B.Com(H), A.C.A., D.I.S.A.
1. Background
First paper on Goods and Service tax (‘GST’) was introduced on 10 November 2009 since then there is a constant wait among professionals and industrialists for Goods and Service tax legislature. Pending the clearance of issues involved in GST regime there was a report of Task force on 15 December, 2009. This report deals with several issues in detail and lays down the path of GST in India. We here under try to summarize the report of 170 pages only in few pages.
2. Levy
The tax base of GST comprehensively extends over all goods and services up to the final consumer point. GST would be structured on the destination principle, as a result of this, tax base will shift from production to consumption whereby imports will be liable to both Central GST and State GST and exports should be relieved from the burden of goods and service tax by zero rating. Consequently, revenue will accrue to the State in which the consumption takes place or is deemed to take place. In Law, no classification of goods and services would be prescribed, so as to avoid classification disputes.
3. Tax Rate
Goods would be categorized as:
1) SIN Goods; and
2) Non SIN Goods
The rate of Central GST and State GST on all non-SIN goods and services should be fixed at a single positive rate of 5 % and 7 %, respectively i.e. total GST rate would be 12%. In addition, there should be a zero rate applicable to all goods and services exported out of the country.
Credit
Capital goods
Full and immediate input credit should be allowed for tax paid (both Central GST and State GST) on all purchases of capital goods (including GST on capital goods) in the year in which the capital goods are acquired. Similarly, any kind of transfer of the capital goods at a later stage should also attract GST liability like all other goods and services.
Inputs
There should be no distinction between raw materials and capital goods in allowing input tax credit.
4. Exemption
Ordinarily, there should not be any exemption from Central GST or State GST.
However, if it is considered necessary to provide exemption, the Centre and the States should draw up a common exemption which should be restricted to the following:
- All public services of Government: including Civil administration, health services and formal education services provided by Government schools and colleges, Defence, Para-military, Police, Intelligence and Government Departments.
However, public services will not include Railways, Post and Telegraph, other commercial Departments, Public Sector enterprises, banks and Insurance, health and education services;
- Any service transactions between an employer and employee either as a service provider, recipient or vice versa;
- Any unprocessed food article which is covered under the public distribution system should be exempt regardless of the outlet through which it is sold;
- Education services provided by non-Governmental schools and colleges; and
- Health services provided by non-Governmental agencies.
The area based exemption in respect of CENVAT should not be continued under the GST framework. In case it is considered necessary to provide support to industry for balanced regional development, it would be appropriate to provide direct investment linked cash subsidy. There should be no exemption for the developers of, or units in, the Special Economic Zones.
5. Threshold
Small dealers, service providers and manufacturers should be exempted from the purview of both Central GST and State GST if their annual aggregate turnover (excluding both Central GST and State GST) of all goods and services does not exceed INR 1 Million. However, tax payers below the threshold limit may be allowed to register voluntarily. The threshold exemption limit should be uniform for both Central GST and State GST and across States. The existing exemption up to INR 15 Million of turnover for small-scale industries would discontinue under the GST framework.
6. Compounded levy Scheme
- Small dealers with annual aggregate turnover of goods and services between INR 1 Million – INR 4 Million may be allowed to opt for a compounded levy of 1 %, each towards Central GST and State GST. However, no input credit should be allowed against the compounded levy.
- Certain high value goods comprising of (i) gold, silver and platinum ornaments; (ii) precious stones; and (iii) bullions are prone to smuggling due to high tax incidence. Therefore, it is recommended that dealers in such high value items may, without the ceiling of INR 4 Million, also be allowed to opt for the compounded levy of 1 %, each towards Central GST and State GST.
7. Taxes to be subsumed
The following Central Taxes should be subsumed in the Central GST:-
- Central Excise Duty (including Additional Excise Duties);
- Service Tax;
- Additional Customs Duty (commonly referred to as ‘CVD’);
- Surcharges and all cesses
The following State level taxes should be subsumed in the State GST:-
- VAT/Sales Tax (including Central Sales Tax and Purchase tax);
- Entertainment tax (other than levied by local bodies);
- Entry taxes not in lieu of Octroi;
- Other Taxes and Duties (includes Luxury Tax, Taxes on lottery, betting and gambling, and all cesses and surcharges by States);
Since all taxes on goods and services levied by the Centre or the States, should be subsumed in the GST, the following other taxes levied by the States on goods and services should also be subsumed:
- Stamp duty;
- Taxes on Vehicles;
- Taxes on Goods and Passengers; and
- Taxes and duties on electricity.
8. Sector wise analysis
8.1 Power sector
Power sector must form an integral part of the comprehensive GST base recommended by us over which both the Central and State Governments would have concurrent jurisdiction. The tax regime for the power sector should be the same as in the case of any other normal good. The electricity duty levied by the States should be subsumed in the State GST. Article 278 and Article 288 of the Constitution should be amended to enable levy of GST on supply of electricity to Government at all levels like any other normal good.
8.2 Tax on vehicles and the tax on goods and passengers
The tax on vehicles and the tax on goods and passengers levied by the State Governments should be subsumed in the GST. All transport equipments and all forms of services for transportation of goods and services by railways, air, road and sea must form an integral part of the comprehensive GST base recommended by us over which both the Central and State Governments would have concurrent jurisdiction. The tax regime for the transport equipments and transport services should be the same as in the case of any other normal good.
8.3 Financial services
The consumption of financial services should be comprehensively taxed under the GST framework on the basis of full taxation method.
8.4 Real estate sector
The real estate sector should be integrated into the GST framework by subsuming the stamp duty on immovable properties. GST regime for immovable property transactions and real estate services should be designed on the lines of the comprehensive taxation method comprising following elements:
a. The GST should apply for all newly constructed property (both residential and commercial). If it is self-used by the person who constructed it, the GST should be applied on the cost of construction. If it is sold or transferred, the GST should be applied on the consideration received at first transfer or sale. In both cases, credit should be allowed in respect of input tax paid on raw materials used in construction.
b. Rental charges received in respect of leasing of immovable property used for both residential and commercial purposes should be charged to GST. No GST would be applicable on imputed rental values for the property.
Input tax credit would be allowed only in respect of input tax paid on goods and services used for maintenance. No input tax credit should be allowed in respect of tax paid on construction or acquisition of the property or tax paid on improvements thereto.
All secondary market transactions in immovable properties should be liable to GST. Wherein the property has been constructed after the introduction of GST, the GST should be levied on the resale value and input tax credit should be allowed in respect of the GST paid upon construction or purchase of the property after making adjustment for inflation. However in case, the property has been acquired by the seller before the introduction of GST, the GST should be levied on the difference between the sale price and the cost of acquisition and improvements thereto. In such cases, no input tax credit would be allowed.
c. The new regime will also be subject to the threshold exemption of INR1 Million.
d. Immovable property will also include land and, therefore, the new regime will also be applicable to land transactions. However, where land is used for construction of a property, it will be treated as an input. In such cases, the GST paid in respect of land will be allowed as input tax credit in the same manner as other inputs used in construction.
e. The State Governments would continue to perform essential asset registry functions, and enforces property rights associated with them. States may continue to levy a registration fee at a specific rate not exceeding INR 1000 per transaction in immovable property, which is merely a user charge for the IT systems used in property registration.
9. Inter-state sales/transfers
In the course of inter-state Business to business supply, the seller in the Origin State shall collect the State GST leviable on the transaction from the buyer in the Destination State as if the sale was within the Origin State.
10. Miscellaneous
(i) The seller would issue an invoice to the buyer indicating the details of the transaction and his business identification number.
(ii) The seller shall use the input State GST for payment of the output State GST on both intra-state and inter-state transactions. To the extent total output State GST is in excess of the input State GST, the same shall be paid into any of the authorized bank in the prescribed manner.
(iii) All registered dealers across the country shall pay the sum due as Central GST and State GST to the credit of the Central Government and all other States within one week from the end of the month to which the sale transactions relate.
(iv) It would be mandatory for all registered dealers to make the payment by electronically furnishing Form No. GST-I, which would be a combined monthly payment and return form for all intra-state and inter-state transactions.
(v) As far as the registered dealer is concerned, he would be required to make a single payment of the aggregate of all sums due to the Centre and all other States. Even though he would have collected tax in the Origin State for inter-state transactions with buyers in a number of destination States, he can fulfill his obligation of directly remitting the tax so collected to all the destination states through a single payment by electronically furnishing Form No. GST-I.
The Central Board of Excise & Customs and the State Tax Administrations shall be responsible for implementing the Central GST and State GST respectively. The various tax administrative functions such as assessment, enforcement, scrutiny and audit should be undertaken by the CBEC in respect of the Central GST and by the State tax administration in respect of the State GST. However, from a taxpayer’s perspective all compliance and enforcement procedures under Central GST and State GST should be uniform. The Central Government shall establish a common IT infrastructure which will serve the needs of both Central GST and State GST.
The jurisdiction between the CBEC and the State Administration may be divided between the two in such a manner that the interface of the taxpayer is confined to one tax administration only. The basis for division could be turnover or any other criteria which is considered reasonable so that the compliance and administrative burden is minimized.
[Comment: Task force report is only an indication of what GST structure might comprise, however actual law is expected to have departure from this task report.
The task force report is a distant dream as huge infrastructure is required for implementation of these proposals on all India basis.]
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