it’s impact on industry · suraj prakash gm (fin) bhel, new delhi 4 announcement in budget 2006...

1Suraj Prakash GM (Fin) BHEL, New Delhi

Overview of Proposed GST IN INDIA

&

IT’S IMPACT ON INDUSTRY

Proposed to be Rolled out from April 2016 ??

Suraj Prakash

General Manager (Fin)

BHEL New Delhi


Existing Tax Structure in India


Goods

Centre – Upto Manufacturing

Excise Duty

States – Distribution and Sales

VAT

CST (thought central law but proceeds go to States)

Entry Tax

Services

Centre – Exclusive Powers

States – No powers (except on luxuries, entertainment)

Real Estate

States

Division of Taxation Powers


Announcement in Budget 2006 to bring GST w.e.f 2010

10th Nov 2009 – First Discussion paper on GST released by EC

15th Dec 2009 Report of GST Task Force of TFC released

Broad Consensus on GST Design

Taxes to be subsumed

Items of GOODS to be kept out of GST

Compensation for revenue loss

Goods of special importance – done away with

Additional origin based tax upto 1% on inter state sales

GST council and its role

However no public announcement on:-

List of Exempt products/services

GST Rates

Threshold exemption limits

GST – current status


A comprehensive Value added Tax on Goods &services

On common & identical base

collected on each stage of sale or purchase in the supplychain

No differentiation between goods and services as GSTis levied at each stage

Seamless ITC throughout the supply chain

Tax pass thru at all stages of production and supply

Tax burden to “stick” only on final consumer –avoiding tax cascading in the entire chain ofproduction and distribution

What is GST


Taxable event is ‘supply of goods’ and ‘supply of services’

as against

‘manufacture of goods’

‘sale of goods’ and

‘rendition of services

What is GST

7

Why do we need GST?

Suraj Prakash GM (Fin) BHEL,

New Delhi


Flaws in existing Tax system

• Archaic system of tax on goods and services• Globalization and competition with foreign goods and

services

• Lack of full credit - Cascading effect on costs•CST•Reversals for stock transfers etc•Large negative list

•High Compliance cost due to multiplicity of laws • Different taxable events for different taxes• Different threshold exemption limits• Lack of Harmony in tax rates

•Origin based tax – leads to tax cascading


Flaws in existing Tax system

•Lack of Uniformity in:• classification• Rules, Forms, procedures etc

•Different Base for levy of tax – tax on tax•Creation & development of common market •No tax on imports•Avoidable litigations due to complications involved in distinction between goods and services

• e.g. supply of software upgrades (goods) as part of software repair & maintenance

• Software development (which may be goods or service)• Leasing/hiring of equipment Double taxation e.g. software, hiring, food supply

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Cascading of existing Taxes

Manufacturer No credit of CST on inputs/ capital goods used in

manufacturing

VAT reversals for stock transfers

Negative list under VAT

Restrictive definitions of ITC under VAT/service Tax

Trader No credit of CST on purchased (traded) goods

No credit for service tax paid on input services

VAT reversals for stock transfers

Negative list under VATSuraj Prakash GM (Fin) BHEL,

New Delhi

11

Cascading of existing Taxes

Service provider No credit of CST/VAT on purchases

Restrictive definitions of ITC under service tax

Leading to inefficiencies & cascading effect inentire supply chain


New Delhi


Central Levies•Excise Duty

• AED

•ED on Medicinal preparations

•Service Tax

•Additional Customs Duties (CVD/SAD)

•Surcharges and Cesses

•Service Tax

State Levies•Value Added Tax

•Purchase Tax

•Entry Tax and Octroi

•Entertainment Tax (except by LB)

•Luxury Tax / Tax on lottery

•State Cesses and S/C relatable to supply of goods and services

•Central Sales Tax

GST

Central GST State GST

Taxes to be subsumed in GST


Goods proposed to be not included in

GST

Alcoholic Liquor for human consumption

Technically Petroleum products covered under GST

However Petroleum products to continue with existingTaxes like sales tax, Excise and CST etc till such timeGST council decides to bring them under GST

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New Delhi

Broad Constituents of Goods & Service Tax

GST

Intra- State Inter- State

CGST SGST IGST

Revenue will be ultimately received by the state in which goods are finally consumed


GST Council Headed by UFM, with UMS-Revenue & all StateFM as members (Art 279A)

GST council to make recommendations to Union & State on:

Taxes, cesses & surcharges levied by GOI/States/LBs which may besubsumed in GST

goods and services to be taxed and exempted from GST

Threshold turnover exemption limit

GST Rates including floor rates with “bands”

Range of GST rates over the floor rate within which CGST SGST may be levied

Special rates to raise additional resources during natural calamity

Model GST laws including:

Principles of levy

Apportionment of IGST

Principles to determine place of supply (However Parliament alone competent

to frame principles for determining place of supply and inter state supply- Art 269A)

Role of GST council


Special provision with respect to NE states, J&K, UK, HP

Date from which GST to be levied on :

Petroluem crude

HSD

Motor sprit (Petrol)

ATF

Natural Gas

Period upto which 1% additional tax on inter state supply of goods to be levied

“Modalities” to resolve disputes arising out of its recommendations

Any other matter relating to GST as Council may decide

Role of GST council


GST Council to be guided by need for:

harmonized structure of GST and

development of harmonized national market

One half of total members to constitute quorum

Council to determine its procedures for performing functions

Any decision of council with atleast 3/4th majority of weighted votes of members – (previously UFM proposed to be given veto power)

Union to have weightage of 1/3rd of votes cast

States to have weightage of 2/3rd of votes cast

Role of GST council


Harmonised GST Rates across States ? (narrow band overfloor rates)

Dual GST: Central GST & State GST

IGST model for Inter State Taxation of supply ofgoods and services including Imports

Destination based State GST

Dual Administration with concurrent jurisdiction byCentre and States - Multiple statutes

One for CGST

One for IGST

One each for each State – similar to present VATlaws

GST : KEY FEATURES


Uniformity in Basic features like ?

Taxable event - Supply of Goods and services

Service “means anything other than goods”

Branch transfers also taxable?

(All forms of supply made for a consideration)

Chargeability, Taxable person

Measure and levy including valuation provisions

Basis of classification

Uniformity in procedures and Forms – Returns, challans etc ?

One Common return & Challan for both Central & State GST

Uniform collection procedure for central and state GST

Common Base - No cascading of Central and State taxes (except 1% origin

based tax)

GST : KEY FEATURES


Threshold exemption limits (Not yet final)

10 L for SGST for both goods and services

Not yet final for CGST – Existing

150 Lakhs for goods and

10 L for services

Centre proposal for increase in threshold

limit from 10 Lakhs to 25 L rejected by EC

Final view by GST Council

GST : Threshold


Export and SEZ (processing zone) zero rated

However supply from SEZ to DTA to be

taxed

Time bound Refunds

GST on Imports – to be treated as Inter state

supply to be taxed under IGST (Art 269A)

PAN based Common TIN registration

GST: KEY FEATURES


No final announcement so far

TFC – single rate of 12% – CGST 5%, SGST 7%

NIPFP- 16 slabs ranging from 14% to 27% for different

scenerios (Including 2/3/4 rate GST)

CGST – 12.77%

SGST - 13.91%

Average GST Rates –

Global Average - 16.40%

Southeast Asia - 8.5%

EU - 19.5%

Asia Pacific - 10.8%

Latin America - 14.2%

Scandinavian countries (Denmark, Finland and Sweden) – 25%

Introductory rate in Singapore – 3% (now 7%)

GST RATES ?


GST rates needs to be moderate to be successful –

lower rate of say 1% for Bullion,

List of exempted items,

a concessional rate and

a standard rate

Wider base with minimum exemption would lead to lower RNR

and lower GST rates

Rates should be uniform/harmonized across States

However uniform rates for both goods and services are

desirable

Final view by GST council

GST RATES ?


Distinction between goods and services

Disputes in discharge of liability for

composite transactions e.g. works contracts

Determination of IGST rate

Classification disputes

Disadvantages of multiple GST Rates


IGST to be apportioned between Centre and States based onrecommendations of GST Council (Art 269A)

Output IGST = CGST+SGST

Tax Payment by exporting dealer to the account of Centre asIGST

Can utilize ITC of IGST, SGST & CGST against output IGST

Exporting State to transfer input SGST utilised while paying IGSTto Centre

Credit of IGST paid by seller allowed to the buying dealer

This IGST paid by buying dealer can be utilized against paymentof IGST, CGST or SGST against his Output GST

Centre to transfer Input credit of IGST utilised by dealer againstpayment of SGST to Importing State

TAXING OF INTER STATE TRANSACTIONS


Strong incentive to buyers to ensure levy and

payment of destination based IGST so as to avail

credit (presently no credit of CST)

Settlement of IGST Account between receiving

and exporting states by central agency who will

act as clearing house mechanism

Stock Transfers (All forms of supply made for a

consideration) - To be taxed ??

If taxed with credit facility to importing branch –

Cash flow issues –

impact on Construction as well as consumer goods industry

TAXATION OF INTER STATE TRANSACTIONS


AREA BASED:To be discontinued after current eligibility period both forCentre and States.

If essential, to be converted in to cash refund/incentive route

PRODUCT BASED: (not yet final)

Goods - The exempted list under VAT regime may be retained under SGST/CGST

Services: Existing negative list could serve as guide

GST EXEMPTIONS


Central Threshold for goods and services –

Existing – Rs 150 Lakhs for goods and Rs 10 lakhs for services

States – Varying between 5 - 10 lakhs

Different limits for Works Contract transactions

Issues Involved in Different Central and Statethresholds

How to handle increased assesee base (approx. 8 Mln) if lowerthreshold of 10L is adopted.

Threshold for Taxability of IGST transactions

Loss of ITC chain in case of purchase by regd dealers from unitsbelow threshold if threshold is 150 Lakhs

Dealers with both goods and service Turnover

Different threshold & different GST rates for goods and services -continuation of existing issues in determining transaction asgoods or services

Issues involved


Treatment of composite transactions/works contracts

Treatment of Transit sales

Road permits and border controls States have reservations

Check posts generally ineffective and causes delays

Services can not be subject to border controls

TFC – Joint Check posts – reduced cost and better control

Issues involved


Passing of 122nd Constitutional amendment Bill

Full set-off of Input tax credit to the assesee /entity, based on principle of business cost andexpenditure

Common appellate authority

Drafting of GST Code with Rules and procedures, formsetc & making it available in public domain

Uniformity in terms of legislation & procedures, formsetc – (As far as practicable)

GST Infrastructure development & testing

Action required/Wish List

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Major Advantages of GST More efficient system of taxation

Creation of harmonized national market

No cascading – seamless credit (except 1% as of now)

Credit to service provider against inputs

Credit to trader against services

Reduced transaction & compliance cost

Harmonised tax rates and tax structure

Reduced litigation

Elimination of Declaration Forms

Elimination of unhealthy competition among States

Suraj Prakash AGM (Ind Tax) BHEL, New Delhi


New Delhi

32

THANK YOU

Suraj PrakashGeneral Manager (Fin)

BHEL, New DelhiPhone:9911224491Suraj Prakash GM (Fin) BHEL, New Delhi

it’s impact on industry · suraj prakash gm (fin) bhel, new delhi 4 announcement in budget 2006...

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