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Taxation of intra-state
supplies of goods
The discussion paper
envisages the applicability of the dual GST comprising a
Central Goods and Services Tax (CGST) as also a State
Goods and Services Tax (SGST) that would apply on every
transaction of goods. A two-rate SGST structure is
proposed for goods. The two-rate structure will comprise
a standard rate which would typically apply for most
goods and a lower rate which would apply to a limited
list of eligible goods. A similar structure is expected
at the Centre as well. Input CGST will be available to
offset output CGST and input SGST will be available to
offset output SGST. Further, one of the key objectives
of GST has been to avoid the cascading effect of taxes.
Given all of the above parameters, the following example
illustrates the current indirect taxes levied on sale of
goods and also how it is proposed to be done in GST.
The aforesaid example assumes that a manufacturer sells
his product to a wholesaler at a base price of 100 and
that the value addition by the wholesaler and the
retailer is 20 each.
It can be seen that in the present tax structure, the
excise duty is charged only at the manufacturing stage
and not thereafter. Also, the value added tax (VAT) that
is charged is inclusive of the excise duty as well and,
hence, there is cascading. Assuming the excise duty and
VAT at the typical rates of 8.24 per cent (including
surcharge) and 12.5 per cent, respectively, the cum tax
price to the end customer is 167.
As against this, under the dual GST model, there is no
cascading of taxes. Also, the excise duty is replaced by
the Central GST, which is assumed at 8 per cent and the
Central GST is now applicable throughout the supply
chain. The State GST is also assumed to be at 8 per cent
and is also applicable throughout the chain. It is in
this manner, therefore, that the dual GST will operate
in parallel throughout the supply chain with input tax
offset against CGST and the SGST, respectively, with no
cross utilisation.
Taxation of inter-state supplies of goods
In relation to the
taxation of inter-state supplies of goods, an innovative
model of Integrated GST (IGST) has been recommended.
IGST will apply on all inter-state supplies and will be
collected by the Centre alone. IGST will, in turn, be
the aggregate of CGST and IGST. The inter-state seller
is able to utilise IGST, CGST and SGST input tax credits
to discharge the output IGST, as above.
In turn, the inter-state purchaser will be able to
utilise IGST so charged to him by the seller, towards
payment of his output SGST on his onward intra-state
supplies. The exporting state will remit to the Centre
the quantum of the input SGST used by the seller in
offsetting the output IGST. The Centre will remit to the
importing state the quantum of IGST used by the
purchaser in that state to offset his output SGST.
Besides, the Centre will also remit the SGST component
of the IGST to the importing state. These payments will
be effected by the Centre through a clearing house
mechanism.
The IGST model is explained below with the help of an
example. The assumptions are:
* Dealer in state-1 sells
goods of value 100 to a dealer in state-2. On the
inter-state invoice generated by dealer in state-1, IGST
would be charged (which will be the aggregate of CGST
and SGST);
* The dealer in state-1 can utilise the input tax
credits of IGST, CGST and SGST in that order for the
payment of output IGST;
* Since the output IGST is 16, and available input tax
credit is 14, the dealer in state-1 will be required to
pay only 2 as cash;
* The credit of input SGST utilised by the dealer in
state-1 for the payment of output IGST will be
transferred to the central government by state-1;
* Dealer in state-2 makes a intra-state sale with a
value addition of 50;
* The value of goods on the intra-state invoice will be
150;
* Both CGST and state-2 GST will be levied by the
dealer;
* For discharge of the output CGST and SGST by the
dealer in state-2, he would utilise the credit of input
IGST, CGST and SGST, again in that order;
* The input IGST credit utilised by the dealer in
state-2 for the payment of output SGST would be
transferred by the Centre to state-2;
The IGST will have the following advantages, as
enunciated in the Discussion Paper:
* Maintains an uninterrupted chain of ITC claims on
inter-state transactions
* No upfront payment of tax and blockage of funds for
the inter-state dealer
* No refunds in the exporting state as the inputs are
used up in paying output taxes.
* It is a self-policing model
* The requirement of computerisation is limited to the
central agency. The inter-state dealers will only
require access to PC and internet connectivity.
* There will be no requirement of road check posts
The IGST model appears to be an elegant and business
friendly model to tax inter-state supplies of goods.
Source :
Business Standard,
India,
dated
13/11/2009
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