GST the game changer: GST will be a game changing reform for Indian economy by developing a common Indian market and reducing the cascading effect of tax on the cost of goods and services.
-It will impact the Tax Structure, Tax Incidence, Tax Computation, Tax Payment, Compliance, Credit Utilization and Reporting leading to a complete overhaul of the current indirect tax system.
-GST will have a far reaching impact on almost all the aspects of the business operations in the country, for instance, pricing of products and services; supply chain optimization; IT, accounting and tax compliance systems.
-Government is committed to introduce GST by April 2017 and the tax payers need to be GST compliant to be able to test system changes in time.
ROAD-MAP
-Since the Bill has been passed in Rajya Sabha and Lok Sabha now has to be ratified by minimum of 15 States in their respective assemblies before the President can give its assent for its enactment.
-GST Council consisting of representatives from the Centre as well as State will be formed within 60 days of the enactment of the Bill. The council will make recommendations to the Union and the States on model Goods & Service Tax laws, the rates including floor rates with bands of goods & service tax, the Place of Supply rules and any other matter relating to GST as the Council may decide Reports of Joint Committee constituted by Empowered Committee of the State Finance Ministers on business processes of payment, registration refund and return under GST have been released and put in public domain for suggestions.
GST Council
The GST Council will consist of:
(a) the Union Finance Minister (as Chairman),
(b) the Union Minister of State in charge of Revenue or Finance, and
(c) the Minister in charge of Finance or Taxation or any other Minister, nominated by each state government.
All decisions of the GST Council will be made by three-fourth majority of the votes cast; the centre shall have one-third of the votes cast, and the states together shall have two-third of the votes cast.
The GST Council will make recommendations on:
(a) taxes, cesses, and surcharges to be subsumed under the GST;
(b) goods and services which may be subject to, or exempt from GST;
(c) the threshold limit of turnover for application of GST;
(d) rates of GST;
(e) model GST laws, principles of levy, apportionment of IGST and principles related to place of supply;
(f) special provisions with respect to the eight north eastern states, Himachal Pradesh, Jammu and Kashmir, and Uttarakhand; and
(g) related matters.
The GST Council may decide the mechanism for resolving disputes arising out of its recommendations.
-The draft model GST Law was released and put in public domain in June 2016.
-GST Network, an IT backbone of GST, which will facilitate online registration, tax payment and return filing will be launched.
-States will frame their respective GST Legislations to enable them to implement GST. It will be in line with the Central GST Legislation.
Compensation to States
-Parliament may, by law, provide for compensation to states for revenue losses arising out of the implementation of GST, based on the recommendations of the GST Council. Such compensation could be 100% for a maximum of five years
Salient features of proposed Indian GST system
-The power to make laws in respect of supplies in the course of inter-State trade or commerce will be vested only in the Union government. States will have the right to levy GST on intra-State transactions including on services.
-Centre will levy IGST on inter-State supply of goods and services. Import of goods will be subject to basic customs duty and IGST.
-GST defined as any tax on supply of goods and services other than on alcohol for human consumption.
-Central taxes like, Central Excise duty, Additional Excise duty, Service tax, Additional Custom duty and Special Additional duty and State level taxes like, VAT or sales tax, Central Sales tax, Entertainment tax, Entry tax, Purchase tax, Luxury tax and Octroi will subsume in GST.
-Petroleum and petroleum products i.e. crude, high speed diesel, motor spirit, aviation turbine fuel and natural gas shall be subject to the GST on a date to be notified by the GST Council.
-Provision for removing imposition of entry tax / Octroi across India.
-Entertainment tax, imposed by States on movie, theatre, etc will be subsumed in GST, but taxes on entertainment at panchayat, municipality or district level to continue.
-GST may be levied on the sale of newspapers and advertisements and this would give the government’s access to substantial incremental revenues.
-Stamp duties, typically imposed on legal agreements by the state, will continue to be levied by the States.
-Administration of GST will be the responsibility of the GST Council, which will be the apex policy making body for GST. Members of GST Council comprised of the Central and State ministers in charge of the finance portfolio.
TIME LINE
UNDERSTANDING OF GST
-GST is a value added tax, levied at all points in the supply chain with credit allowed for any tax paid on inputs acquired for use in making the supply. It would apply to both goods and services in a comprehensive manner with exemptions restricted to a minimum.
-In keeping with the federal structure of India, it is proposed that GST be levied concurrently by the Centre (CGST) and the States (SGST). It is expected that the base and other essential design features would be common between CGST and SGST, across SGSTs for the individual States. Both CGST and SGST would be levied on the basis of the destination principle. Thus, exports would be zero-rated, and imports would attract the tax in the same manner as domestic goods and services. Inter-State supplies within India would attract an Integrated GST (aggregate of CGST and the SGST of the destination State).
-In addition to the IGST, in respect of supply of goods, an additional tax of up to 1% has been proposed to be levied by the Centre. The revenue from this tax is to be assigned to the origin states. This tax is proposed to be levied for initial two years or such longer period as recommended by the GST Council.
GST has been envisaged as a more efficient tax system, neutral in its application and distributionally attractive. The advantages of GST are:
- -Wider tax base, necessary for lowering the tax rates and eliminating classification disputes
- -Elimination of multiplicity of taxes and their cascading effects
- -Rationalization of tax structure and simplification of compliance procedures
- -Harmonization of center and State tax administrations, which would reduce duplication and compliance costs
- -Automation of compliance procedures to reduce errors and increase efficiency
Destination principle
The GST structure would follow the destination principle. Accordingly, imports would be subject to GST, while exports would be zero-rated. In the case of inter-State transactions within India, the State tax would apply in the State of destination as opposed to that of origin.
Taxes to be subsumed
GST would replace most indirect taxes currently in place such as:
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Sourcing
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Distribution
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Pricing and profitability
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Cash flow
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System changes and transaction management
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