Pard D- First discussion paper on GST- Segment 4 (last)

[Deepak Aggarwal]

GST……Goods and Services Tax

Part-D

First Discussion Paper on GST

• Fourth Segment (annexure) has twenty (20) Frequently Asked Questions and Answers (FAQ) on GST.
• 1^st Question- Justification of GST- already covered in earlier articles. In net shell, GST is not simply VAT plus Service tax but a major improvement over the previous current system.
• 2^nd Question- Meaning of GST and its working model- already covered in earlier articles. In net shell, GST is a tax on goods and services in which final consumer will be charged only GST charged by the last dealer. There will be no double taxation and tax on tax impact anywhere in supply chain.
• 3^rd Question- Logic that GST will reduce the burden of tax, in general- already covered in earlier articles. In net shell, there will be no cascading effect of taxes on goods and services. There will be a set off from the producer’s point to the retailer’s point. Also other major central and state taxes would be subsumed in GST and also CST will be phased out. All these will reduce the tax burden.
• 4^th Question- Benefits of GST to industry, trade and agriculture- In net shell, a complete chain of setoff and subsumed of other central and state taxes will lower down the tax burden on an average dealer in industry, trade and agriculture.
• 5^th Question- Benefits of GST to the exporters- In GST model, due to set off and subsumed of central and state taxes, cost of locally manufactured goods and service will down. It will increase the competitiveness of Indian goods and services in the International market and give boost to Indian exports.
• 6^th Question- Benefits of GST to the small entrepreneurs and small traders- In GST model, a uniform threshold across all states, below which no GST will be payable is recommended. The raising of threshold will protect the interest of small traders. Also a composition scheme for small traders and businesses is also suggested in GST model.
• 7^th Question- Benefits of GST to the common consumers- Already explained in 3^rd Question. In general, burden of tax on goods would fall under GST and would benefit the consumers.
• 8^th Question- Salient features of the proposed GST model- Already covered in earlier articles. In net shell, GST will be charged on all goods and services except exempted goods and services. There will be dual GST. One will be charged by the central in the form of CGST and second concurrently will be charged by the States in the form of SGST. For interstate sale, IGST mechanism is introduced. Cross utilization of input tax credit between the CGST and SGST will not be allowed. Each taxpayer will be allotted a PAN linked tax payer identification number with a total of 13/15 digits.
• 9^th Question- Requirement of Dual GST- Due to constitutional requirement of fiscal federalism, dual GST model is recommended.
• 10^th Question- Mechanism of Concurrently taxation by centre and states on a particular set of transactions of goods and services- In GST model, both CGST and SGST will be levied simultaneously on the same value unlike State Vat which is levied on the value of goods including excise duty. Also SGST would be chargeable only when the supplier and the recipient are both located within the state.
• 11^th Question- Proposed Central and state taxes subsumed in GST- Already covered in earlier articles. In net shell, taxes subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services and they should be a part of the transaction chain. Specific provision to deal with some specific goods will be also part of GST model.
• 12^th Question- Proposed rate structure under GST- A two- rate structure is recommended in GST model. A lower rate for necessary items and a standard rate for general goods. Also a special rate for precious metal and a list of exempted items is also suggested.
• 13^th Question- Concept of providing threshold exemption for GST- Threshold exemption is provided to keep small traders out of tax net. Also Small traders get advantage over large enterprises on account of lower tax. Same time it is difficult to administer small traders and cost of administering of such traders is very high in comparison to revenue contribution by them.
• 14^th Question- Scope of Composition and Compounding scheme- The Composition/ Compounding scheme under GST will have an upper ceiling on gross annual turnover and a floor tax rate. Limit of ₹ 50 lacs of the gross annual turnover and 0.5% floor tax rate is recommended in GST model. Also optional registration will be allowed for the dealers with turnover below the compounding cutoff.
• 15^th Question- Mechanism of taxation of Imports under GST- A constitutional amendment is required for taxation of imports. Both CGST and SGST will be levied on imports. The incidence of tax will be destination of goods and services and the tax revenue in case of SGST will accrue the state in which imported goods and services are consumed.
• 16^th Question- Cross utilization of credits between goods and services- Under GST, cross utilization between goods and services will be allowed. In fact it is gist of GST. However the cross utilization of CGST and SGST will not be allowed except in case of inter-state supply of goods and services.
• 17^th Question- Taxation mechanism under inter-state supply i.e. IGST model- The scope of IGST model is that centre will levy IGST which would be CGST plus SGST on all inter-state transactions of taxable supply of goods and services. The interstate seller will pay IGST on value addition after adjusting available credit of IGST, CGST and SGST on his purchases. The interstate buyer will claim credit of IGST in his own state while discharging his tax liability in the state.
• 18^th Question- Justification of constitutional amendment for introduction of GST- Our Constitution empowered the Central government to tax services and goods up to the stage of production i.e. up to manufacturing level and the State government to tax on the sale of goods. The constitution does not vest express power to levy a tax on the supply of goods and services either to the Central government or to the State government. Also constitution does not empower the states to impose tax on imports.
• 19^th Question- Legislative steps being taken for CGST and SGST- A joint working group consisting the officials of Central and State government has constituted to draft legislation for constitutional amendment.
• 20^th Question- Framing of rules for administration of CGST and SGST- The joint working group has also been entrusted the task of preparing draft legislation for CGST, SGST and IGST including rules and procedures. It will also address the issues of dispute resolution and advance ruling.
• Happy Voting Delhi……………………………7^th Feb.2015