Goods & Service Tax

• As the name suggests, it is a tax levied when a consumer buys a good or service.
• It is meant to be a single, comprehensive tax that will subsume all the other smaller indirect taxes on consumption like service tax, etc.
• GST eliminates the cascading effect of taxes.
• It is an indirect tax for the whole country on the lines of “One Nation One Tax” to make India a unified market.
• GST would be levied and collected at each stage of sale or purchase of goods and services based on input tax credit method
• In other words, Taxes already paid can be offset in the consequent taxation.
• GST will be levied at all the stage of supply chain from manufacturing to final phase of consumption, but only on value addition.
• Ex: Car Production 10,00,000 + 28% GST. (GST – Destination based Tax).
1. Manufacture in Kerala & Sell in Kerala (Intra state)
• CGST – 14% = 1,14,000 → Union Govt.
• SGST – 14% = 1,14,000 → Kerala Govt.
2. Manufacture in Kerala & Sell in TN (Inter State)
• CGST – 14% = 1,14,000 → Union Govt.
• IGST – 14% = 1,14,000 → TN Govt.
• UTGST – for Union Territory.

Evolution

• France was the first country to introduce GST system in 1954.
• More than 140 countries have implemented the GST.
• 2000: Initiating discussions on GST, Vajpayee government appoints an Empowered Committee headed by the then finance minister of West Bengal Asim Gupta.
• 2004: Vijay Kelkar, then advisor to the Finance Ministry, recommends GST to replace the existing tax regime.
• The UPA Government took the matter further and announced in 2006 that this tax would be introduced from April 1, 2010.

Taxes Subsumed

• At the central level, following taxes are being subsumed under GST
• Central Excise Duty
• Additional Excise Duty
• Service Tax
• Countervailing Duty
• Special Additional Duty of Customs
• At the state level, following taxes are being subsumed under GST
• State VAT/Sales Tax
• Entertainment Tax
• Central Sales Tax
• Octroi and Entry Tax
• Purchase Tax
• Luxury Tax
• Taxes on lottery, betting and gambling
• GST council would recommend on the taxes, cesses and surcharges that are levied, which would be subsumed

Exemptions

• Alcohol for human consumption
• Five petroleum products viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel
• Electricity
• The above arrangement is “temporary” and the GST Council will decide the date from which they shall be included in GST.
• For these commodities, the existing VAT and central excise will continue to operate until they are included in GST.
•  It’s worth note here that Tobacco and Tobacco Products have been included in GST and centre will have power to levy the GST on tobacco and tobacco products.
• Apart from the above, there will be no GST on the sale and purchase of securities, which shall continue to be governed by Securities Transaction Tax (STT).

How would be GST administered in India?

• There will be two components of GST – Central GST (CGST) and State GST (SGST) in order to comply with federal structure of India. Hence it is constitutional necessity of fiscal federalism

For intra-state trade GST = (CGST + SGST)

• The GST levied by centre is called Central GST (CGST) while that levied by states / UTs is State GST (SGST) or UTGST.

For inter-state trade IGST= CGST + SGST (destination state)

• For inter-state supply of Goods & Services, an Integrated GST (IGST) will be levied and administered by Centre.
• CGST and IGST will be levied and administered by Centre;
• while SGST / UTGST will be levied and administered by respective states and UT administrations.

101^st Constitutional Amendment Act

• The new articles added by this amendment to Indian Constitution are
• Article 246-A (Special provision with respect to goods and services tax);
• Article 269-A ((Levy and collection of goods and services tax in course of inter-State trade or commerce) and
• Article 279A (GST Council).
• The residuary power of legislation of Parliament under article 248 is now subject to article 246A.
•  Article 249 has been changed so that if 2/3rd majority resolution is passed by Rajya Sabha; the Parliament will have powers to make necessary laws with respect to GST in national interest.
• Article 250 has been amended so that parliament will have powers to make laws related to GST during emergency period.
• Article 268A has been repealed so now service tax is subsumed in GST.
• Article 269 would empower the parliament to make GST related laws for inter-state trade.

CGST Act,2017

CGST Registration Number

• One registration number is for CGST and it is being proposed at a pan-India level unlike the existing excise registration numbers at the factory/location based. This will reduce the number of registration numbers which business have to obtain and also the number of returns which have to be filed.
• Peak tax rate is 20% under CGST This bill once becomes an act, will allow the centre to levy CGST on goods and services within the boundary of a state.
• The rate of CGST will not exceed 20%. We note here that under GST, the peak rate is 20% for CGST and 20% for SGST, thus the highest tax that can be charged as GST would be 40%.
• However, this level of taxes has been provided only as enabling provisions. The highest tax rate tier currently is 28% (there are four tiers viz. 5, 12, 18 and 28%).

Eligibility

• The government has made it mandatory for business whose aggregate turnover in a financial year exceeds Rs 20 lakh to register under Goods and Services Tax (GST).
• The GST exemption limit for North eastern and hilly states, including Arunachal Pradesh, Assam, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand, is Rs 10 lakh.
• However, the GST Council on January 10, 2019, doubled the GST exemption limit to Rs 40 lakh for micro, small and medium enterprises (MSMEs).
• The GST exemption limit for northeastern and hilly states has also been doubled to Rs 20 lakh.

Composition Scheme

(Company not able to Pay GST use Composition Scheme. If 50,00,000 is income, pay 4% Tax (2,00,000) of Income).

• Composition Scheme is a simple and easy scheme for small and medium businesses. What is unique about the scheme is that it reduces the compliance burden/effort and cost of small firms.
• The SMEs may face difficulties in submitting frequent returns and to undergo complex procedures of the tax network
• A taxpayer whose turnover is below Rs 1.0 crore* can opt for Composition Scheme. In case of North-Eastern states and Himachal Pradesh, the limit is now Rs 75 lakh*.
• It is optional under which manufacturers other than those of pan masala, tobacco and ice cream and e-commerce retailer’s products have to pay 2% tax on their annual turnover.
• The tax rate is 5% for restaurant services and 1% for traders.
• The GST composition scheme, under which intra state suppliers of goods pay tax at a flat rate on the turnover (generally 1 per cent), can now be availed by businesses with a turnover of up to Rs 1.5 crore as against the earlier limit of Rs 1 crore.
• It is proposed to increase this turnover limit with effect from February 1, 2019
• A composition scheme shall be introduced for supplier of services having a turnover of up to Rs 50 lakh (Other than Restaurant).
• The service providers opting for composition scheme can pay tax at a rate of 6 per cent (CGST 3 per cent + SGST 3 per cent) on their turnover and would not be   eligible to avail any input tax.
• The said scheme shall be applicable across all service providers. The service providers covered under the Composition Scheme shall be required to file 1 annual return and make quarterly payment of GST. Suitable notification is, however, awaited in this regard.

GST (Compensation to States) Bill, 2017 (Compensation Cess Bill)

The salient features are as follows

• This bill provides for compensation to states for any loss in revenue due to implementation of GST.
• The period of compensation will be five years from the date the state brings SGST in force.
• For the purpose of calculating the compensation amount in any financial year, year 2015-16 is to be considered as base year. The revenue in that year and a 14% growth rate in revenue will be taken for calculation for five years.
• The GST council has recommended a Compensation Cess which can be levied on certain goods and services and its proceeds will be credited to a Compensation Fund.
• This cess is capped at 135% for Pan Masala; Rs. 400, tonne for coal; Rs. Rs 4,170 + 290% per 1,000 sticks of tobacco, and 15% for all other goods and services including motor cars and aerated water.

Compensation Cess Example:

• 1% Compensation Cess on Good of 28% Tax. To Compensate given to Manufacture state.
• Ex: 100 (Good Value) + 28 (GST) + 0.28 (Compensation Cess) = 128.28.
• Compensation given to Manufacture States for 5 Years.
• Compensation only to the State GST collection is less than State CST (Collected before GST).
• Based on Compound interest of 14% for 5 Years. Ex: 100 → 114 → 129.96 → 148.15.

GST Council – Federal Institution

Article 279-A:

• There will be a GST council constituted by President, headed by finance minister as its chairman and one nominated member from each state who is in charge of finance or taxation.
• All decisions taken at the GST council will be taken based on voting.
• A constitutional body, created with 2/3rd representation from states and 1/3rd from centre to examine issues related to GST and
• All decisions in GST Council to be taken by 3/4th majority (75%)
• One-half of the total number of Members of the Goods and Services Tax Council shall constitute the quorum at its meetings (50%).
• The Goods and Services Tax Council shall determine the procedure in the performance of its functions.

Composition

• Chairperson: The Union Finance Minister
• Member:
• The Union Minister of State in charge of Revenue or Finance.
• The Minister in charge of Finance or Taxation or any Other Minister nominated by each State Government.
• The Secretary (Revenue) as the Ex-Officio Secretary to the GST Council;
• Inclusion of the Chairperson, Central Board of Excise and Customs (CBEC), as a permanent invitee (non-voting) to all proceedings of the GST Council.

Revenue Neutral Rate

• Ex: Before GST, there has VAT, Central Tax etc… Total Tax collection is 15 lakhs Collection.
• After GST, Set the tax value of Goods to get same Revenue to the Economy. (Fixing Goods at proper percentage of tax, like 0%, 5%, 12%, 18%, 28% for different goods to get same amount of Revenue).
• Due to changing goods of different tax like Some goods 18% to 5%, Some goods 5% to 28% - Revenue Neutral rate low (Tax collection is low).
• National institute of public finance & policy Recommendations (Same Revenue compare to before GST)

Current GST  Rate	Possible  Revenue Neutral Rate
5%	8%
12%	15% (Merging 12% & 18% Slab)
18%
28%	30%
Total Rates -  8	Total Rates – 7 (Assume no  changes in special rate)

Effective GST Rate

• Currently Mean value of GST = 11.4% (Before GST, Average tax is 14%).
• At the time of GST implement Effective GST rate (Mean value) = 15%. But changing the commodities tax, it goes down to 11.4%.
• Calculated by Rate of GST of All Commodities divide by Total no of Commodities.

Goods and Services Tax Council shall make recommendations to the Union and the States on

• The taxes, cess and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax.
• the goods and services that may be subjected to, or exempted from the goods and services tax.
• model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on supplies in the course of inter-State trade or commerce under article 269A and the principles that govern the place of supply.
• the threshold limit of turnover below which goods and services may be exempted from goods and services tax.
• the rates including floor rates (Slabs of GST) with bands of goods and services tax.
• Any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster.
• special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and
• Any other matter relating to the goods and services tax, as the Council may decide.

Benefits of GST

For business and industry Uniformity of tax rates and structures

• GST will ensure that indirect tax rates and structures are uniform across the country.
• Thereby it will increase certainty and ease of doing business i.e. make it tax neutral, irrespective of the choice of place of doing business in the country.

Removal of cascading

• The GST will ensure minimal cascading of taxes (i.e. tax on tax) as it will have a system of seamless tax-credits throughout the value-chain, and across boundaries of States.
• It will help to reduce hidden costs of doing business.

Easy compliance

• The GST regime will have a robust and comprehensive IT system. (GST-Network)
• Therefore, all tax payer services such as registrations, payments, returns, etc. will be available to the taxpayers online.
• Thus it would make compliance easy and transparent.

Improved competitiveness:

• It will reduce transaction costs of doing business that will eventually lead to an improved competitiveness for the trade and industry.

Gain to manufacturers and exporters:

• The subsuming of major Central and State indirect taxes in GST would reduce the cost of locally manufactured goods and services.
• It will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports.

Benefits for Central and State Governments

Simple and easy to administer

• GST will replace multiple indirect taxes at the Central and State levels into single regime.
• GST backed with a robust end-to-end IT system will be simpler and easier to administer than all other indirect taxes of the Centre and State levied so far.
• Better controls on leakage.
• The robust IT infrastructure of GST regime will result in better tax compliance that will curb leakages and incentivize tax compliance by traders.

Higher revenue efficiency

• GST will lead to higher revenue efficiency as it is expected to decrease the cost of collection of tax revenues of the Government.

GST Network

(Returns filing, input tax credit, Data [Find manufacture state, Consumer state etc…], Investors get Easy of doing business [which state is suitable for their business])

• GSTN is the Special Purpose Vehicle for GST administration. The GSTN shall provide a shared IT infrastructure and services to Central and State Governments, tax payers and other stakeholders for implementation of GST.
• Currently, Centre and states together hold 49% stake (24.5% each) in GSTN.
• The remaining 51% is owned by five private financial institutions- ICICI Bank, NSE, HDFC Ltd, HDFC Bank and LIC Housing Finance Ltd.
• Its revenue model after GST was rollout out consisted of User Charge to be paid by stakeholders who will use the system and making it self-sustaining organization.
• Earlier in May 2018, GST Council, chaired by Union Finance Minister Arun Jaitley and comprising state finance ministers had agreed to make GSTN a government company with Centre owning 50% stake and states together holding the remaining 50%.
• Over 1.1 crore businesses are registered on GSTN portal. With enhanced role of GSTN from just collecting taxes to data analytics, Government had felt that it should now be the majority owner in the IT backbone provider.

Economic Survey 2018 on GST

• Apart from GST’s potential to create one Indian market, expand the tax base and foster cooperative federalism, data from the GST can help unveil and understand some long-elusive and basic facts about the Indian economy.
• Some new findings include:

1) Taxpayers:

• There has been a fifty percent increase in the number of indirect taxpayers; and a large increase in voluntary registrations, especially by small enterprises

2) Tax base and its spatial distribution:

• The distribution of the GST base among the states is closely linked to their Gross State Domestic Product (GSDP), allaying fears of major manufacturing states that the shift to the new system (with GST being a destination and consumption-based tax) would undermine their tax collections;

3) International Trade, Interstate Trade and Economic Prosperity:

• Data on the international exports of states suggests that conventional wisdom is correct with a state’s GSDP per capita (standard of living) being highly correlated with its export share in GSDP.

4) Informality of the Indian Economy:

• 87% of firms are purely informal (outside both social security and tax nets), 12% of firms are under tax net but not social security net/and less than 0.1% are in social security net and not in tax net.