Introduction
Goods
and Services Tax is a comprehensive indirect tax which is to be levied on the
manufacture, sale and consumption of goods and services in India. This is so
far the biggest tax reform in the country. GST eliminates the cascading effect
of taxes because it is taxed at every point of business and the input credit is
available in the value chain.
Historical Background
France
was the first country to introduce GST system in 1954. More than 140 countries
have implemented the GST. Genesis of GST occurred during the previous NDA
Government under Atal Bihari Vajpayee Government when it set up the Asim
Dasgupta committee to design a model for GST. The UPA Government
took the matter further and announced in 2006 that this tax would be introduced
from April 1, 2010. However, so far it was not introduced. All the GST bills
including Constitution (101st Amendment) Act have been passed
now and GST is set to come into force from July 1, 2017.
GST Council
The
mechanism of GST Council would ensure harmonization on different aspects of GST
between the Centre and the States as well as among States. It has been
specifically provided that the GST Council, in its discharge of various
functions, shall be guided by the need for a harmonized structure of GST and
for the development of a harmonized national market for goods and services. The
GST Council shall establish a mechanism to adjudicate disputes arising out of
its recommendation or implementation thereof.
Taxes Replaced by GST
GST
would replace almost all vital indirect taxes and cesses on Goods &
services in the country. Among the taxes levied by centre, GST will subsume the
following:
- Central
Excise duty & Service Tax
- Duties
of Excise (Medicinal and Toilet Preparations)
- Additional
Duties of Excise (Goods of Special Importance)
- Additional
Duties of Excise (Textiles and Textile Products)
- Additional
Duties of Customs (commonly known as CVD)
- Special
Additional Duty of Customs (SAD)
- Central
Surcharges and Cesses so far as they relate to supply of goods and
services
Among
the state taxes that would be replaced by GST include:
- State
VAT
- Central
Sales Tax c. Luxury Tax
- Entry
Tax (all forms)
- Entertainment
and Amusement Tax (except when levied by the local bodies)
- Taxes on
advertisements
- Purchase
Tax
- Taxes on
lotteries, betting and gambling
- State
Surcharges and Cesses so far as they relate to supply of goods and
services
Principles followed in subsuming
the taxes
The
following principles were adopted while subsuming the above taxes under GST.
- Firstly, the
taxes to be levied should primarily indirect taxes and should be part of
the transaction chain that commences with production or manufacturing or
import of good / service at one end and consumption at other.
- Secondly, such
replacement of taxes should result in free flow of tax credit in intra and
inter-state level.
- Thirdly, the
GST should give fair revenue to both centre and states.
Commodities Not under GST
Kindly
Note that following have been kept out of the ambit of GST:
- Potable
alcohol
- Five
petroleum products viz. petroleum crude, motor spirit (petrol), high speed
diesel, natural gas and aviation turbine fuel
- Electricity
The
above arrangement is “temporary” and the GST Council will decide the date from
which they shall be included in GST. For these commodities, the existing VAT
and central excise will continue to operate until they are included in GST.
It’s worth note here that Tobacco and Tobacco Products have been included in
GST and centre will have power to levy the GST on tobacco and tobacco products.
Apart
from the above, there will be no GST on the sale and purchase of securities,
which shall continue to be governed by Securities Transaction Tax (STT).
Understanding Dual GST
Most
of the countries have a unified GST system. Brazil and Canada follow a dual
system where GST is levied by both the Union and the State governments. India
also has dual GST where Centre and States simultaneously levying it on a common
tax base. The structure is as follows:
For intra-state trade
The
GST levied by centre is called Central GST (CGST) while that levied by states /
UTs is State GST (SGST) or UTGST.
For inter-state trade
For
inter-state supply of Goods & Services, an Integrated GST (IGST) will be
levied and administered by Centre.
CGST
and IGST will be levied and administered by Centre; while SGST / UTGST will be
levied and administered by respective states and UT administrations.
Principles followed in
adopting dual GST
The principle
of fiscal federalism has been adapted where by centre and states
have been assigned powers to levy and collect taxes through appropriate
legislations.
GST Legislation
The
entire GST legislation is based on six separate acts / bills. Their current
status (April 4, 2017) is as follows:
- Constitution
101st amendment Act, 2016: This act
was passed in September 2016 and comes into force in July 1, 2017.
- Central GST (CGST) Bill, 2017
- SGST (state GST) Bill, 2017
- Union Territory GST (UTGST)
Bill, 2017
- Integrated GST (IGST) Bill, 2017
- GST (Compensation to States)
Bill, 2017 (Compensation Cess Bill)
They
were passed by the Lok Sabha on 29th March, 2017 and by the Rajya Sabha on 6th
April, 2017.
GST provides for a
Compliance rating mechanism for tax payers
As
per Section 149 of the CGST/SGST Act, every registered person shall be assigned
a compliance rating based on the record of compliance in respect of specified
parameters. Such ratings shall also be placed in the public domain. A prospective
client will be able to see the compliance ratings of suppliers and take a
decision as to whether to deal with a particular supplier or not. This will
create healthy competition amongst taxable persons.
GST Provides for an
Anti-Profiteering measure
As
per section 171 of the CGST/SGST Act, any reduction in rate of tax on any
supply of goods or services or the benefit of input tax credit shall be passed
on to the recipient by way of commensurate reduction in prices. An authority
may be constituted by the government to examine whether input tax credits
availed by any registered person or the reduction in the tax rate have actually
resulted in a commensurate reduction in the price of the goods or services or
both supplied by him.
For GST to be levied –
there must be business and quid-pro-quid
In
order to be a supply which is taxable under GST, the transaction should be in
the course or furtherance of business. As there is no quid pro quo involved in
supply for charitable activities, it is not a supply under GST.
GST differentiates between
composite supply and mixed supply
Composite
supply is a supply consisting of two or more taxable supplies of goods or
services or both or any combination thereof, which are bundled in natural course
and are supplied in conjunction with each other in the ordinary course of
business and where one of which is a principal supply. For example, when a
consumer buys a television set and he also gets warranty and a maintenance
contract with the TV, this supply is a composite supply. In this example,
supply of TV is the principal supply, warranty and maintenance service are
ancillary.
Mixed
supply is combination of more than one individual supplies of goods or services
or any combination thereof made in conjunction with each other for a single
price, which can ordinarily be supplied separately. For example, a shopkeeper
selling storage water bottles along with refrigerator. Bottles and the
refrigerator can easily be priced and sold separately.
Under
GST, Composite supply shall be treated as supply of the principal supply. Mixed
supply would be treated as supply of that particular goods or services which
attracts the highest rate of tax.
Final Structure of GST
- The
threshold limit for exemption from GST is Rs. 20 lakh for the State and Rs
10 Lakh for the special category states.
- A four
slab tax rate structure of 5%, 12%, 18% and 28% has been adopted for GST.
- A cess
would be levied on certain goods such as luxury cars, aerated drinks, pan
masala and tobacco products, in addition to the GST rate of 28% .This
would be used for payment of compensation to the states. (A cess is a tax
that is levied by the government to raise funds for a specific purpose)
- The
threshold for availing the Composition scheme is Rs. 75 lakh. (Rs.50 lakh
for special category states) and they are required to file quarterly
returns only.
- Certain
categories of manufacturers, service providers (except restaurants) can
not avail the Composition Scheme.
