It is proposed that CGST will subsume the following
taxes: Central excise duties, additional excise duties,
excise duties under Medicinal and Toilet Preparation
Act; Service tax; Additional Customs duty (CUD) and
Special additional Customs Duty (SAD); Surcharges, and
Cess;
The SGST is expected to subsume the following State
taxes: Value added tax (or sales tax); Entertainment
tax; Luxury tax; Tax on lottery, betting and gambling;
and State cess/ surcharge.
The State governments are finding it difficult to arrive
at consensus on following taxes to be subsumed in the
GST:
Purchase tax; Octroi duty; tax on alcoholic beverages
(country liquor / IMFL); tax on petroleum products, and
tax on tobacco items.
Besides above, there is still no clarity on services —
whether both, CGST and SGST would be levied on all
services or that the Centre and the States would
distribute services amongst themselves or that the
Centre alone will levy service tax on services and then
appropriate it amongst the States.
Highlights of proposed GST
The following are the highlights of proposed GST to be
levied in the country:
Dual structure:
As expected, India is implementing a ‘dual GST'. The
Central Government will be levying Central GST (CGST)
and State Governments the State GST (SGST). CGST and
SGST would be applicable on all the transactions of
goods and services made for a consideration, except
exempted goods and services outside the purview of GST,
and transactions below the prescribed threshold.
Statutes:
This dual GST model will be implemented through multiple
statutes (one for CGST and one for SGST for every
State). However, an assurance is given in the paper that
the basic features of law, such as chargeability,
definition of taxable event and taxable person, measure
of levy including valuation provisions, basis of
classification, etc., would be uniform across these
statutes, as far as practicable.
Date of introduction:
No date for introduction of the GST is proposed in the
Paper. The deadline for its implementation i.e. April 1,
2010 is likely to be missed.
Rate of GST:
Rate for SGST and CGST is not specified in the paper but
it is assured that the same would be known at
appropriate time. The rates in GST regime would be:
Necessities:
Lower Rate
Goods of basic importance:
Standard rate
Precious metals:
Special rate
Exempted items:
Nil Rate
Tax credits:
The paper specifies that the Credit of CGST would be
available for payment of CGST and credit of SGST would
be available for payment of SGTS.
In due course, the rules for taking and utilisation of
credit for the Central GST and the State GST would be
prescribed and would be on similar lines. Fortunately,
cross-utilisation of tax credit between the Central GST
and the State GST will be allowed for inter-State supply
of goods and services under the IGST model.
Interstate GST (IGST):
The Central Government would levy IGST (which would be
CGST plus SGST) on all inter-State transactions of
taxable goods and services with appropriate provision
for consignment or stock transfer of goods and services.
The inter-State seller will pay IGST on value addition
after adjusting available credit of IGST, CGST, and SGST
on his purchases. The exporting State will transfer to
the Centre the credit of SGST used in payment of IGST.
The importing dealer will claim credit of IGST while
discharging his output tax liability in his own State.
The Centre will transfer to the importing State the
credit of IGST used in payment of SGST.
Basic threshold:
A dual threshold is proposed for CGST and SGST. For CGST,
the basic exemption for goods would remain at Rs. 1.5
crore and for services a similar exemption would be
provided later. For SGST, the basic exemption for goods
and services would be Rs 10 lakh.
Composition/ Compounding Scheme:
There will be a compounding cut-off at Rs 50 lakh of
gross annual turnover and a floor rate of 0.5 per cent
across the States. The scheme also has an option for GST
registration for dealers with turnover below the
cut-off.
Zero rating of exports:
Exports would be zero-rated. Similar benefits may be
given to Special Economic Zones (SEZs). It is also
specified that the refund of CGST/SGST should be granted
in a time-bound manner.
GST on Imports:
Both CGST and SGST will be levied on import of goods and
services into the country. Full and complete set-off
will be available on the GST paid on import on goods and
services.
Special Industrial Area Scheme:
After the introduction of GST, the tax exemptions,
remissions etc. related to industrial incentives would
be converted, if at all needed, into cash refund
schemes. Regarding Special Industrial Area Schemes, it
is clarified that such exemptions, remissions etc. would
continue up to legitimate expiry time both for the
Centre and the States.
Taxes to be subsumed in GST:
In CGST the taxes to be subsumed are Central Excise
Duty, Additional Excise Duties, Service Tax, Additional
Customs Duty, commonly known as Countervailing Duty (CVD),
Special Additional Duty of Customs - 4 per cent (SAD),
Excise Duty levied under the Medicinal and Toiletries
Preparation Act, Surcharges and cesses. Whereas SGST
will subsume VAT/sales tax, entertainment tax (unless it
is levied by the local bodies), luxury tax, taxes on
lottery, betting and gambling, State cesses and
surcharges in so far as they relate to supply of goods
and services, entry tax not in lieu of Octroi.
Products outside GST regime:
Items containing alcohol and petroleum products will be
outside the GST regime. However, in respect of `Purchase
Tax' no decision is made whether it should be part if
GST regime or outside it.
Compliances and Procedures:
The assessees would be allotted PAN-based registration
numbers and would be required to file periodic returns
for SGST & CGST. Also, appropriate accounting codes will
be prescribed for Central GST and State GST separately.
Tax Administration:
Tax administration of CGST and SGST would be parallel,
meaning that SGST will be administered by State
Government and CGST by Central Government. In view of
the introduction of GST, IT infrastructure will be
improved. Further, requisite Constitutional amendments
will also be carried out.
It is mentioned that specific provisions would also be
made to the issues of dispute resolution and advance
ruling. It is apparent that the paper gives clarity on
many fronts though clarity still eludes on the taxable
event in GST, rate, carry forward of Cenvat credit, etc.
Preparedness
A very strong infrastructure network would be required
to administer GST which would include facility for
online payment of tax and e-filing of returns. The GST
as a new levy could be a very effective tool and
breakthrough in indirect tax reforms, provided it is
made simple and assessee-friendly - not like the present
tax system.
Given the preparedness on the government, legislative
and administrative fronts, it is likely that the GST may
not be implemented from April 1, 2010 and may be
deferred by four months to one year.
