"Central State Tax Laws"
GST – Where are we and what next ? Baroda, June 2010 Presenter: Bhavna Doshi To recapitulate – GST Principles Imports - Taxed Business Business Exports – Relieved of tax Internal trade – Tax sticks to goods When and How – So far…. GST from 1.4.2011 Budget Speech, 2010 Empowered Committee – First Disc Paper – Nov, 2009 Comments of the Finance Ministry on Report of EC Report of the Task Force -13th Finance Commission- Dec,2009 GST Model Central Level GST…… State Level GST…… Centre and State to legislate, levy and administer How is it different from current system ? Central VAT/Service Tax to GST Current and Proposed Design Features Tax on manufacture of goods & provision of services – Tax on supply of goods & services Multi point tax with input tax credit - same Standard rate across country – national level - same Exports – zero rated – almost full input tax credit – same Imports –subject to CenVAT/Service tax - same Central VAT/Service Tax to GST Current and Proposed Design Features Invoice based credit system - same Registered dealer concept for maintaining chain – not required Value added by trade not captured – will be captured Origin based Manufacturing Sector Goods VAT & Service Sector VAT to Central GST State VAT to State GST Current and Proposed Design Features Tax on sale of goods – services not covered – services will be covered Multi point tax with input tax credit - same Exports – zero rated – full input tax credit for state VAT and partial for service tax - same State VAT to GST Current and Proposed Design Features Imports – tax free – will be taxable Invoice based credit system - same Value added by trade for goods captured – same Destination based Trade Sector Goods VAT to S-GST To what advantage – why dual model ? Two level GST - merits Achievable from constitutional perspective No adverse impact on Central and State Government revenues/ cash flows No need for major shift in staffing requirements GST on import of goods – issue of unequal treatment of domestic and imported goods addressed Exports can be relieved of taxes – more competitive Revenue Receipts- Indirect Taxes (State level) 2004-05 2005-06 2006-07 (as a % of the (as a % of the (as a % of the total revenue) total revenue) total revenue) Sales Tax * 61.7 61.6 62.6 State Excise Duties 11.6 11.6 11.4 Stamp duty & Reg. fee 10.4 10.7 11.0 Other Taxes 16.3 16.1 15.0 Total 100 100 100 * Comprises of General Sales Tax, Central Sales Tax, Sales Tax on motor spirit and Purchase Tax on sugarcane, etc. Source: Economic Survey 2006-07 and State Finance report from RBI website Two level GST - Demerits Cost of compliance for businesses- will continue to be high Apprehensions/risks continue: – Variable rates/Exemptions/trade diversion – Non uniformity of classification – Double taxation – overlap between states and Centre and states – Multiplicity of litigation……. “Feel Good” Factor ( ? ) International Comparatives? Australia ? United States of America ? Canada ? Brazil ? EU ? Major Reform….what is reform ? A tax loophole is something that benefits the other guy. If it benefits you, it is tax reform. Full of challenges Issues and Challenges Constitutional Amendment Constitutional Amendments Central List State List New List ?? Taxes to be subsumed? Central Level State Level Comprehensive Sin/Demerit goods? Services ? Statute/Rules Two 28 + Rates Same at Centre and State/for goods & services? Same for intra state and interstate transactions ? Same for special types of transactions like works contracts, leases ? How many ? Fixed / Variable – flexibility within range ? Exemptions ? Who should determine ? GST Rates - International comparison GST Rates - International comparison 35.0 24.1 30.0 25.0 19.0 19.6 20.0 20.0 17.0 17.5/15 14.0 15.0 12.5 13.0 15.0 10.0 10.0 5.0 0.0 Australia Germany Mexico Zealand Canada Africa France South China India Italy New UK * CENVAT: 10.3 % + VAT;12.5 % Source: KPMG Classification Common across the country? Interpretations – how to ensure uniformity? Valuation Tax base for both levels same ? Common across the country ? Interpretations – how to ensure uniformity? MRP based and like – should continue ? Interstate Transactions Intra-state and Inter-state Trade – avoid double and no taxation Goods Services Central Sales Tax Act – abolition or modification? Central Sales Tax 25000 19345 20000 17371 14284 15000 10000 5000 0 2004-05 2005-06 (RE) 2006-07 (BE) CST collection Budgetary support of Rs 5495 crore Source: State finance report from RBI website; Budget speech 2007-08 Proposed IGST Model Manufacturer (Maharashtra) Sale price 100 CGST + SGST Add: CGST (10 percent) 10 Add: SGST (10 percent) 10 Buyer (Maharashtra) Total 120 Sale price 120 IGST Add: IGST (20 percent) 24 Total 144 Buyer (Delhi) IGST payable (24-10-10) 4 IGST payable by utilising IGST, CGST, SGST 27 Impact of taxing Inter-state stock transfers: Illustration Raw Pre – GST Raw Post - GST Material Price Excis VAT Material Pri CGS SG IGS e (12.5%) / ce T ST T (10%) CST (10 (10 (20 (2%) %) %) %) Product 400 40 55 Product X 400 40 40 - X (local) (local) Product Y 400 40 8.8 Product Y 400 - - 80 (inter- (inter- state) state) Total 800 80 63.8 Total 800 40 40 80 Company A manufactures Product P which is stock transferred at INR 1000 28 Input Tax Credit Comprehensive for each level Central to Central and State to State Restrictions and limitations – capital goods, consumables, promotional materials, fuel? Deemed sale transactions Interpretations – how to ensure uniformity ? Proposed Credit utilisation under GST Credit available for Output Liability utilisation IGST, CGST, SGST IGST CGST, IGST CGST SGST SGST, IGST Basic Exemption Common or different? For goods and services For Central GST and State GST Between States Should apply on cumulative basis? Others Incentive Schemes Records Advance Rulings Assessments / Audits Transition provisions …… & More…… Other Issues Taxable event – sale / supply (for inter-state) / raising of invoice MRP scheme to be abolished Impact on high seas sales, exemption to in-transit sales? Job work – whether supply of „goods‟ or „service‟? Job work arrangements - valuation, treatment of credit etc Transition related matters – closing stock, accumulated credit 33 Central Indirect Tax Regulatory Authority/GST Council… …formalization of EC... … a possible solution ? Road ahead – what businesses ought to do? What this transition will entail Changes in effective tax rates for supplies as well as purchases Supply chain: Tax cost on sourcing/ distribution/ logistics Transactions/ Supplies which are currently exempt from tax may become liable to GST, Finance: Impact on cash and vice-versa flows, project costs Marketing: Impact on Input taxes which are currently a cost may be eligible as „credit‟ in future product price, promotional schemes Special tax computation schemes, valuation IT: Invoicing, returns, MIS provisions may be amended/ withdrawn reports 36 Compute GST Liability Import goods 100 Manufacturer-Maha Pur goods in Maharashtra Sale in 60 150 Maharashtra Interstate 40 Purchase Stock transfer to 80 Gujarat Import - Tech services 50 Sale to Rajasthan 100 consumer Assumptions Interstate Services C-GST: 12 % 40 S-GST: 8 % Sale to Madhya Pradesh dealer 70 I-GST: 20 % Domestic Services 10 Complexities? Teaser Once, a fairly long time ago, God appeared in dream of Mr. Patel, a businessman and permitted him to ask three questions: Mr Patel who was quite involved in politics, asked : When will Sanjay Gandhi become a PM of India ? God replied - Not during his lifetime. He asked the second question - When will Rajiv Gandhi become a PM of India ? God replied - Not during his mother’s lifetime. Teaser Mr Patel then asked the third and final question - When will Tax Laws become simple ? After thinking for a while, God replied………… Any guesses…..? Teaser Not during my lifetime......