Goods & Service Tax

Discussion on Challenges & Synergies August, 2010

Contents

Present taxation system of India What is Goods and Service Tax (GST) An Introduction Silent features on First Discussion Paper on GST Broad propositions Not covered and clear Broad propositions - Reasonable clear Challenges before Industry/Service Sector Proactive actions Requirement Areas - Tax Synergy
By CA. Vinay Bhushan

Present Taxation System in India

Multistage taxation on manufacture and distribution channels Sectors specific taxes like Entertainment Tax, Luxury Tax, Textile Cess etc. Difference types of Cesses like Education Cess, Secondary & Higher Education Cess etc. Tax on value additions i.e. Value Added Tax Tax on Inter State transaction i.e. Central Sales Tax

By CA. Vinay Bhushan

Manufacture Sector - Multiple Taxes

Central Excise Duty {8%}

Value Added Tax { 0%, 4%, 12.5%}

Manufacturing Sector

Central Sales Tax {2%}

Educations Cesses {3%}

R & D Cess {5%}

Other local taxes like Entry Tax, Octroi, State Cesses etc. are also applicable

By CA. Vinay Bhushan

Service Sector - Multiple Taxes

Education Cess {2%}

Service Sector

Service Tax {10%}

Secondary & Higher Education Cess {1%}

By CA. Vinay Bhushan

Silent features of the Discussion Paper on GST

GST shall have two components (1) levied by Central Government (Central GST) (2) levied by State Government (State GST) GST Will be governed by multiple statutes

Cross utilization of Input Tax Credit (ITC) between Central GST & State GST would not be allowed
Periodical returns need to be filed with Central and State authorities separately, tax will be deposited through separate account heads PAN- linked taxpayer identification number will be issued

By CA. Vinay Bhushan

Silent features of the Discussion Paper on GST

Threshold Limit:State GST for Goods & Services Central GST for Goods Central GST for Services

INR 1.00 Million INR 15.00 Million Not provided (however it is conveyed that it will be appropriately high)

Compounding / Composition Limit:

Composition/compounding limit

INR 5.00 Million with tax at the rate of 0.5 %

By CA. Vinay Bhushan

CENVAT CREDIT MECHANISM UNDER PRESENT TAXATION AND PROPOSED GST Present Taxation Scheme
-

Proposed GST
-

Cross credit of good and service tax is allowed since September 10, 2004; But limited to Central Excise & Services Tax Cross credit among VAT and Service Tax, Central Excise is not allowed Credit on inter- State transactions is not allowed; Cross Credit of VAT with CST liability is allowed

Cross credit of good and Services would be allowed Cross credit with respect to Central GST and State GST transaction would not be allowed

By CA. Vinay Bhushan

TAXES WHICH WOULD BE SUBSUMED UNDER THE PROPOSED GST

Central Taxes
-

State Taxes
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Central Excise Duty Additional Excise Duty Service Tax Additional Customs Duty (CVD) Special Additional Duty of Customs (SAD) Surcharges and Cesses

VAT /Sales Tax Entertainment Tax Luxury Tax Tax on Lottery, betting & Gambling State Cesses and Surcharges Entry Tax

GST

CGST

IGST
By CA. Vinay Bhushan

SGST

Broad Propositions- Not Covered and not Clear

GST rates are not disclosed Valuation mechanism of Goods and Services Place of provision of Services or place of receipt in case of services are not clear Taxable event- whether on receipt basis or on receivable basis No discussion on Stamp duty on Immovable property

By CA. Vinay Bhushan

Broad propositions - Reasonable clear

Cross Credit among the CGST & SGST- Not allowed Three type of taxes- CGST, SGT & IGST No change for Liquor, Petroleum Industry

By CA. Vinay Bhushan

Challenges & Proactive Actions before Industry/Service Sector

Business Restructuring:

Phasing out of CST Change in tax rates of goods and services Logistics, Transaction model etc.

Location Based Exemptions Export Obligations Change in ERP Systems Training of Middle Management Team

By CA. Vinay Bhushan

Areas - Tax Synergy

Analysis of Tax rates Vs. Pricing Policy, Business Cycle Warehouse/logistic Vs. Direct Supply Stock Planning Backward & Forward integration of business if there is change in tax rates of Inputs or output

By CA. Vinay Bhushan

How Tax Managers/Consultants can add value

Mapping of current transactions

Mapping of flow of good and services Ascertain current tax cost

Impact Analysis and what if analysis

Assessment of impact of GST on draft legislation Key structuring/changes in business operations Identify possible alternative business model Potential actions to mitigate adverse GST effect (if any)

Final Impact Analysis

Implementation Assistance
By CA. Vinay Bhushan

How Tax Managers/Consultants can add value

Implementation Assistance

Transition Stock Planning Registration under new legislation/s Maintenance of records as per new formats Manner of computation of Credit and tax liability Invoice Formats Changes in ERP/accounting system

By CA. Vinay Bhushan

THANK YOU

By CA. Vinay Bhushan