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IMPACT OF GST ON INDIAN TRADE.

Presented by:
Pooja Baderia
MBA
Department of Business
Economics
University of Delhi
GOODS AND SERVICES TAX
Biggest indirect tax reform since 1947

Levied on manufacture sale and consumption of goods and services

Function of the GST is to transform India into a uniform market by breaking the current fiscal
barrier between state

Officially known as The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014

Biggest advantage would be in terms of a reduction in the overall tax burden on goods

Taxes such as excise duty, service, central sales tax, VAT (value added tax), entry tax or octroy will all
be subsumed by the GST under a single umbrella.

The GST will be instrumental in helping the GDP of India to grow by 2 percent
OBJECTIVE OF GST
o Making the Value chain more strong to ensure availability of input credit.
o To put control over extra taxation schemes.
o Making easy process of tax administration and compliance.
o Putting administration procedures, tax base, laws into a line.
o Cutting extra numbers of tax slabs for avoiding classification complexity.
o Putting all the states into an equality proportion.
o Increasing the tax base for strictly adherence
NEED FOR GST IN INDIA
Introduction of a GST to replace the existing multiple tax structures of
Centre and State taxes are not only desirable but imperative in the emerging
economic environment.

Increasingly, services are used or consumed in production and distribution of


goods and vice versa.

Separate taxation of goods and services often requires splitting of transaction


values into value of goods and services for taxation, which leads to greater
complexities, administration and compliances costs.
GOODS & SERVICES TAX (GST) IN INDIA TYPE OF
GST
WHY CONSUMPTION BASED TAX?
Most favoured tax base from both the perspective of economic neutrality and
ease of administration
o restricts tax burden to final consumption goods
o no distinction drawn between capital goods and other inputs and no
depreciation need to be computed
o consumption is argued to be a broad measure of the ability to pa y taxes,
much like income
o it excludes savings from the base, hence does not discourage investment
PROPOSED GST MODEL FOR INDIA
HOW IS GST LEVIED?
GST will be levied on the place of consumption of Goods and services. It can be levied
on :
-Intra-state supply and consumption of goods & services
-Inter-state movement of goods
-Import of Goods & Services
GST ON IMPORT OF GOODS:
IMPORT OF GOODS TO INDIA IS TREATED AS INTERSTATE SUPPLY, HENCE
TREATED AS IGST. SO IGST IS LEVIED ON IMPORT OF GOODS TO INDIA.

Currently, imports of most goods attract customs duty of 29.44 per cent at the
standard rate. This includes basic customs duty (10 per cent), plus additional duty or
countervailing duty (CVD) equal to excise duty at 12.5 per cent, plus 4 per cent
special additional duty (SAD) and an education cess at 3 per cent.

Under the GST regime, only basic customs duty will remain. Additional duty and
SAD will be abolished and IGST (inter-state GST) is expected in their place.
IGST
Explanation 1.- A supply of goods and/or services in the course
of import into the territory of India shall be deemed to be a supply
of goods and/or services in the course of inter-State trade or
commerce.

Explanation 2. An export of goods and/or services shall be


deemed to be a supply of goods and/or services in the course of
inter-State trade or commerce
IGST or integrated goods and services tax would mean the tax levied under IGST
Act on the supply of any goods and / or services in the course of inter-state trade or
commerce.

Interstate trade or commerce will, therefore include supply of goods / services in


the course of
o Inter-state trade or commence

o Import into Indian territory (deemed to be inter-state)

o Export (deemed to be inter-state)

o Thus, IGST shall apply to inter-state transactions and import as well as export

transactions (deemed to be inter-state transactions) relating to supply of goods


and / or services.
CENVAT = 10% ; Value Addition = 10% ; VAT = 10% ; CST = 2% ; ITC = Input Tax Credit
The final price to be paid by the Consumer is Rs.152.97
IMPORT DUTIES REPLACED WITH GST
Under GST regime, levy of IGST on imports would subsume CVD & SAD.
Also, it appears that EC & SHEC shall continue to be levied on imports of
goods on BCD and other Duties under Customs Act except CVD and SAD
which are going to be subsumed under GST.

GST model proposed only transaction value based valuation.

This would certainly impact the valuation, working capital and management
of cross border transactions.
The major import gaining sectors include leather and leather products; furniture and fixtures; agri
IMPORT TAXES AT THE PORT ?

The Basic Customs duty would remain. Remaining all taxes would be
subsumed under IGST. Goods thereafter can be moved to any state and the
IGST would be carried over as tax credit. The IGST credit can be used in the
consuming state to cover for the SGST and CGST there. Any deficit in IGST
would have to be paid additionally.

The key difference here would be that since taxes are collected at one point
and through one since mechanism refund and exemptions would be easier
and more predictable. Based on this it seems that when GST kicks in some of
the issues would be automatically resolved
EXPORTATION OF GOODS AND SERVICES:

Export is exempted from GST. Exporters are allowed to claim the GST bill during export of
processed import products, formally known as duty drawback. An exporter is liable to pay
customs duty at the time of exportation, however under GST, it will be zero rated.

The beneficial factor in GST is that, if the company delivers goods to the local forwarding
agent for the purpose of export to an overseas client, no GST is needed to be charged from
the overseas client by the company.

In case of machinery fault imported for export production, the export of service is zero
rated, whereas If any parts are newly implemented then GST will be levied during import of
machinery, if the only service is carried out on existing machine, GST will not be charged.
The sectors with relatively high proportional increase in exports include textiles and readymade garments; beverages; industrial machinery

In sum, implementation of a comprehensive GST in India is expected to lead to efficient allocation


of factors of production thus leading to gains in GDP and exports. This would translate into
enhanced economic welfare and returns to the factors of production, viz. land, labour and capital
GST ON GOLD

Talks persist about the implementation of a 4% GST on gold bullion


and reducing the gold custom duty by 80% to 2%. A 16% GST on
gold jewellery may also be possible. The move has the potential to
curb smuggling by bringing down import costs to 6% from the
existing 10% customs duty. This change would also enhance the
revenue of the Center and state governments.
SPECIAL ECONOMIC ZONE:

SEZ would continue to enjoy exemption in respect of goods or


services exported by it. Any sale by SEZ to Domestic Tariff Area
(i.e.within India) would be taxable, as other goods and services
are taxed in India. Present law with regard to exemption of SEZ is
almost similar, only change would be that technical jargons and
complexities are removed.
EXPORTS TO CLIMB:

GST improves ease of doing business. With uniform taxation and cost efficiencies owing to reduced
time and costs in transportation, one obvious effect would be that Made in India products would now
be more cost competitive in the global markets.

Eventually exports from the country will increase.

For instance, New Zealand implemented GST in CY1986 and saw it exports jump from $5,880 million
in CY1986 to $7,195 million CY1987, a growth of 22.36%.

Australia, which implemented GST regime in CY2000. Australias exports grew at a CAGR of 7.9%
from $63,870 million in CY2000 to $86,565 million in CY2004.

The present system of differential multiple tax regimes across sectors of production and locations
leads to distortions in allocation of resources as well as supply chain and warehouse structuring.

GST WILL IMPACT POSITIVELY FOR THE SAME IN FOLLOWING WAYS:-

Exporters will be able to get the refund and rebate of the state taxes (SGST) which
is presently not available to them.
The duty drawback rates may go up because the GST rate would be higher than the

present rate of Central Excise. The component of service tax is quite low at present.
The refund procedures may become simple as all the data of GST is available

online
All export data will be available on GSTN domain. It will be quite transparent and

no scope for the tax Department or the exporters to dispute or manipulate it.
The refund/rebate on the export of services may be increased substantially and

bring at par with the export of goods.


All other export promotion schemes may be remodeled to remove duplication and

help the exporter.


KEY FEATURES OF GST:
It ensure integrity of credit chain and increased credit flow through the
supply chain.
GST would lead to efficient allocation of factors of production. The overall
price level would go down.
It reduced duty benefit claimed on imports and reduced quantum of export
incentives / drawback on export of goods from India.
The rate of drawback could be limited to amount of BCD embedded in the
export product.
In effect, reduced exemptions for ensuring continuity of credit chain and
efficiency of the credit chain under GST is likely to reduce the degree of
influence of export incentives under FTP and drawback scheme
An effective alignment of the Foreign Trade Policy with GST could make the difference between
a decline and increase in trade with the introduction of GST.
GST exports are expected to become tax-free thus enhancing competitiveness of Indian
exporters. In fact, all local duties and cesses should also get full offset through the
instrument of GST.

With this in mind, one can first look at the Export Schemes in some countries where GST is already in
force.
Destination based Consumption type GST should
be adopted as it contributes towards increased
international competitiveness and sustainability
of domestic industries
o The objective of GST is to make the supply chain leaner and flexible, while the major impact will be seen
in the warehouse industry.
o The growth in Indian warehouse industry is driven by the domestic consumption, increase in
international trade, increase in private and foreign investments in infrastructure.
With GST implemented, there will no longer be necessity of having a
warehouse in every state, where a firm does business. The same
decisions will be free from tax consideration prospective and will
purely based on operational and logistics efficiency.
Service Sector contributes significantly in export as well as provide a large
scale employment. Indias services sector covers a wide variety of activities such
as trade, hotel and restaurants, transport, storage and communication, financing,
insurance, real estate, business services, community, social and personal
services, and services associated with construction.

Governments Revenue

Costlier Services

In GST tax structure both supplies of goods and services will be treated once
with the unique rate of tax respectively.
BENEFITS TO MANUFACTURERS AND TRADERS:

One tax

Common market

Distinction between goods and services will go

Invoicing will be simpler

No entry tax

Common exemptions between Centre and states

Big central excise tariff will go

Concept of manufacture will go

Classification controversies will go

Problem of identification will go

Undue enrichment law will go

Zero rating will be more comprehensive and more easy


COMMON ECONOMIC MARKET :

free movement of goods


free movement of salaried and non-salaried workers

freedom of establishment of persons and companies in the territory of any

member state

free capital movements for business or personal purposes.


GST is an opportunity to improve competitiveness and enable much larger participation
in global markets

GST, which is expected to eliminate these distortions is being rightly seen as a once in a lifetime
opportunity to improve industry competitiveness and enable much larger participation in global
markets.

Recent studies examining the gains from reduction of internal and external barriers to trade in India,
suggest that the combined benefits will be of a very significant scale- roughly a 20 % increase in
economic welfare, with reduction in internal barriers trade accounting for over half that number.

Indians transition away from agriculture will require productive opportunities for workers and firms
in manufacturing and services. GST will have a big impact on both ease of doing business and on
world competitiveness rankings. If the economy evolves as is hoped, the GST council can rest easy
over its revenue concerns a policy reform of this magnitude and reach will surely deliver the
necessary growth and, quite likely, a good bit more.
HOW GST CAN BENEFIT MAKE IN INDIA
Duty on manufacturing (goods) will come down from the present level of 26.5 per cent
(Centre: 14 per cent, state value-added tax: 12.5 per cent). This will happen mainly
through a more balanced sharing of the tax burden between the goods and the services
sector.

The same GST rate will apply to both imports and domestic manufacturing

Taxation by the Centre and the states of the same taxable base from raw material to
retail will facilitate better compliance verification

The GST will encourage small units to grow and reap the benefits of scale
IMPACT

Bring down unhealthy competition


by enveloping the entire nation with
uniform VAT and sales tax rates

The businesses should prepare for


GST by undertaking GST impact
assessment study and have a high-
level plan for the GST transition.
roll out of GST would boost the
Indias GDP growth by 1 percent to 2
percent
LIMITATIONS OF GST
Critics have argued that the GST is a regressive tax.

The introduction of the GST would negatively impact the real estate market

Critics claim that CGST, SGST and IGST are nothing but new names for Central
Excise/Service Tax, VAT and CST and hence GST brings nothing new to the table .

The GST will not have a positive impact on: the States fiscal, and therefore, political
autonomy.
IMPLEMENTATION CHALLENGES

1. Lack of adaptation

2. Lack of trained staff

3. Double registration can increase compliances and cost

4. Lack of clear mechanism to control tax evasion

5. Hard to estimate the exact impact of GST


CONCLUSION
The taxation of goods and services in India has been characterized as a cascading
and distortionary tax on production.
A well designed destination-based value added tax on all goods and services is the
most elegant method of eliminating distortions and taxing consumption.
Under this structure, all different stages of production and distribution can be
interpreted as a mere tax pass-through, and the tax essentially sticks on final
consumption within the taxing jurisdiction.
improve compliance, and eliminate economic distortions in production, trade, and
consumption.
Second, by giving credit for taxes paid on inputs at every stage ofthe supply chain
and taxing only the final consumer, it avoids the cascading of taxes, thereby cutting
production costs, and makingexports more competitive.
The GST will add 2 per cent to the national GDP.