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What is GST
A good and service tax (GST) or value added tax
(VAT) is a tax on domestic consumption. It is
multi-stage tax for which the tax burden is
intended to fall on the final consumer.
Under GST, registered dealer is to charged GST
on its output and pay GST on inputs. Difference of
OUTPUT GST and input GST he has to pay to the
tax authorities.
To avoid cascading effect tax is paid on only on
the vale addition at each stage.
GST-Global Scenario
More than 140 countries have already introduced
GST/National VAT
Most countries have a single GST rate
Typically it is a single rate system but two/three rate
systems are also prevalent depending upon the
requirement of the implementing nation
Standard GST rate in most countries ranges between
15-20%
All sectors are taxed with very few exceptions/
exemptions
Full tax credits on inputs 100% set off
GST
Country
Korea
Indonesia
Taiwan
New Zealand
Philippines
Japan
Thailand
China
Singapore
Cambodia
Vietnam
Australia
India
Malaysia
Slide 4
Standard rate
10%
10%
5%
12.5%
12%
5%
7%
17%
7%
10%
10%
10%
16% (TBC)
4% (?)
Date introduced
22 Dec 1976
1 April 1985
15 November 1985
1 October 1986
1988
1 April 1989
1 January 1992
1 January 1994
1 April 1994
1 January 1999
1 January 1999
1 July 2000
1 Oct 2010 (TBC)
July 2011 (?)
Different taxes
Direct Taxes
Indirect Taxes
Excise Duty
Manufacture of goods in India attracts Excise Duty
under the Central Excise act 1944 and the Central
Excise Tariff Act 1985. Herein, the term Manufacture
means bringing into existence a new article having a
distinct name, character, use and marketability and
includes packing, labeling etc.
Customs Duty
The levy and the rate of customs duty in India are
governed by the Customs Act 1962 and the Customs
Tariff Act 1975. Imported goods in India attract basic
customs duty, additional customs duty and education
cess.
Sales Tax/VAT
Sales tax is levied on the sale of movable goods. Most
of the Indian States have replaced Sales tax with a new
Value Added Tax (VAT) from April 01, 2005. VAT is
imposed on goods only and not services and it has
replaced sales tax.
Service Tax
Service tax is levied at the rate of 10% (plus 2%
education cess) on certain identified taxable
services provided in India by specified service
providers. Service tax on taxable services
rendered in India are exempt, if payment for such
services is received in convertible foreign
exchange in India and the same is not repatriated
outside India.
Securities Transaction Tax
Transactions in equity shares, derivatives and
units of equity-oriented funds entered in a
recognized stock exchange attract Securities
Transaction Tax
15
Tax Cascading
Manufacturer 1
Manufacturer 2
Raw materials
50
Raw materials
Labour
30
Labour
45
Others
10
Others
15
Profit
10
Profit
15
Total ex-factory
Central Excise@12%
Sale Price
100
12
112
13
Total paid by M2
125
Total ex-factory
Central Excise @12%
Sale Price
Sales Tax @12%
Total sale price
125
200
24
224
27
251
Centre
CX @12%
Manufacturer-1
Manufacturer-2
Sales Dealer 1
Sales Dealer 2
Service
Provider
State
VAT@12%
Centre
Basic Cost
70
Value Addition
30
Total
100
12
ValueAddn.+ Taxes
50
Total
150
18
Basic Cost
150
18-13.4=4.6
ValueAddn.+ Taxes
40
4.8
Total
190
ValueAddn.+ Taxes
60
7.2
Total
250
30
Basic Cost
250
ValueAddn.+ Taxes
50
Total
300
36-18=18
66
36
(66/234 = 28%)
13.4
30
18
Manufacturer-1
Manufacturer-2
Sales Dealer 1
Sales Dealer 2
Service Providr
CGST@9%
SGST@8%
Basic Cost
70
Value Addition
30
Total
100
9.00
8.00
Value Addition
50
4.50
4.00
Total
150
Value Addition
40
3.60
3.20
Total
190
Value Addition
60
5.40
4.80
Total
250
Value Addition
50
4.50
4.00
Total
300
27
24
(9%)
(8%)
Rates indicated are for demonstration only. Final rates have not even been discussed .
19
General concepts
Output tax
OUTgoing invoice Sale OUTput Tax
Input tax
INcoming invoice Purchase INput Tax
Difference = Amount payable to / refundable by Customs( 14
or 28 days)
GST is a tax on final consumer. It is not a cost to the
Intermediaries.
It does not appear as an expense item in the financial
statement of the intermediaries.
Slide 20
Manufacturer
Price: RM 50
GST: RM
2.00
Retailer
Price: RM 60
GST: RM
2.40
Consumer
Slide 21
cost
competitiveness
of
A few points
The EC has been discussing GST for about 2 years now.
There is a broad consensus between Centre & States on
the policy areas relating to GST to be introduced by
1.4.2010. This will be a dual GST
25
26
27
29
GST Compensation
Mechanism
When rates are made uniform across
all States and input tax credit is given
for all transactions (manufacture or
sale or service), some States will
lose, while some will gain. How will
losing States be compensated?
One method is through the mechanism
of the XIII Finance Commission.
32
Education and
communication
Finance and
Administration
Human
Capital
Sales and
Marketing
Informati
on
Systems changes
Technolo
for GST compliance
gy
Accountabil
ity
Impact on current
contracts
Procurement
Business
efficiency
Group structure
review
Slide 36
INPUT
GST rate
Raw Materials
- local
- Imported
4%
4%
Services
- local
- Imported
4%
4%
Capital Assets
- local
- Imported
Salaries
Slide 37
- Out of Scope
4%
4%
OUTPUT
Sales
- Export
- local
GST
0%
4%
GST on accrual basis. If customers dont pay you, you still need to pay
the GST.
Slide 38
Slide 39
i.e. No supply to goods and you do not have to account for GST output tax
on the raw materials
If the sub-contractor is a GST registrant, he has to account for GST output tax on
the raw materials
If the sub-contractor is a GST registrant, he has to account for GST output tax on
the value of the services supplies to the owner
A Sdn Bhd
Farmed Out
Slide 40
B Sdn Bhd
Raw materials valued at RM10,000 (No
GST)
Before GST
(a)
A
Sales Tax
Licensed
Manufacturer
(1)
(2)
Trading
Company
Slide 41
End Customer
After GST
(b)
(3) Cashflow Impact
(3) Cashflow
Impact
(1)
(2)
End
Customer
Slide 42