What is GST and how it will change taxation in India.
What is GST (Goods and Services Tax) ?
GST is a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India to replace taxes levied by the central and state governments.
This method allows GST-registered businesses to claim tax credit to the value of GST they paid on purchase of goods or services as part of their normal commercial activity. Administrative responsibility would generally rest with a single authority to levy tax on goods and services. Exports would be considered as zero-rated supply and imports would be levied the same taxes as domestic goods and services adhering to the destination principle in addition to the Customs Duty which will not be subsumed in the GST.
Introduction of Goods and Services Tax (GST) is a significant step in the reform of indirect taxation in India. Amalgamating several Central and State taxes into a single tax would mitigate cascading or double taxation, facilitating a common national market. The simplicity of the tax should lead to easier administration and enforcement. From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%, free movement of goods from one state to another without stopping at state borders for hours for payment of state tax or entry tax and reduction in paperwork to a large extent.
GST is expected to be applicable from 1 July 2017.
The following taxes will be bound together by the GST:
- Central Excise Duty
- Service Tax
- Countervailing Duty
- Special Countervailing Duty
- Value Added Tax (VAT)
- Central Sales Tax (CST)
- Octroi
- Entertainment Tax
- Entry Tax
- Purchase Tax
- Luxury Tax
- Advertisement taxes
- Taxes applicable on lotteries
GST is levied on all transactions such as sale, transfer, barter, lease, or import of goods and/or services. India will adopt a dual GST model, meaning that taxation is administered by both the Union and State Governments. Transactions made within a single state will be levied with Central GST (CGST) by the Central Government and State GST (SGST) by the government of that state. For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government. GST is a consumption based tax, therefore, taxes are paid to the state which the goods or services are consumed not the state in which they were produced. IGST simplifies tax collection for State Governments by enabling them to collect the tax owed to them directly from the Central Government. Under the previous system, a state would have to deal with multiple state governments in order to collect tax revenue.
How GST works in India ?
GST is the integrated indirect tax which is levied on the Supply of Goods and Services. There will be dual GST with the Center and State simultaneously levying it on the common tax base. The CGST and SGST will be charged on intra-state supplies whereas IGST will be charged on inter-state supplies. The small business having turnover up to Rs. 20 Lakhs are exempted from GST under. All the other taxpayer having the turnover of more than Rs. 20 Lakhs (Rs 10 Lakhs in northeast States) are required to register and pay GST. The Commerce and finance graduates can become GST Return Preparer (GST Practitioner) to file return on behalf of taxpayers.
Effects of GST ?
The tax rate under GST may be nominal or zero rated for the time it charged. It has been proposed to insulate the revenues of the States from the impact of GST, with the expectation that in due course, GST will be levied on petroleum and petroleum products. The central government has assured states of compensation for any revenue losses incurred by them from the date of introduction of GST for a period of five years.
GST on Exports.
Under the GST Law, export of goods or services are treated as Zero rated supplies, therefore, GST will not be charged on the export of goods or services. The credit on inputs used for making export supplies will be available to the exporter. The exporters have two options either to export goods under Bond and claim refund of input credit or to export goods under rebate claim and claim the refund of output tax.
Source/Credit : Wikipedia
How about imports? What happens to customs duty and it's related tax structures.
ReplyDeletesome of the implications for imports by virtue of GST implementation in India:
Delete1. Import as Inter-State Supply – Import into India will be considered as Inter-State supply under Model GST Law and accordingly will attract Integrated Goods and Services Tax (IGST) along with BCD and other surcharges.
2. Import of Services – Model GST law accord liability of payment of tax on the service receiver, if such services are provided by a person residing outside India. This is similar to the current provision of reverse charge, wherein service receiver is required to pay tax and file return.
3. Transaction Value based Valuation Principal – Model GST law has borrowed the concept of transaction value based valuation principal from current customs law for charging GST. This will have implication at the time of tax liability determination as currently CVD is charged on MRP valuation principle. Under the new regime IGST which subsumes CVD will be charged on transaction value. This may also require working capital restructuring. This may also reveal the margin of Service Provider which is currently not the case.
4. Refund of Duty – Under the new law, tax paid during import will be available as a credit under “Import and Sale” model, whereas no such credit is available presently. Also refund of SAD which is available now, after doing specific compliance, no such restrictions are placed under GST.
5. Withdrawal of Current Exemptions – The current customs import tariff is loaded with multiple exemption notifications which are likely to reviewed and possibly withdrawn or converted into a refund mechanism. This could mean change in the structure of export-linked duty exemption schemes under the FTP where the duty exemptions may get limited to exemption from payment of BCD, while IGST may not be exempted. Withdrawal of exemptions or changing them to refund mechanism could fundamentally change the attractiveness and viability of some of the key schemes under the FTP like EOU, STP, Advance authorization etc.
Presently there are transactions such as 'Sale in Transit' and 'High sea sales' how these transactions can be viewed under GST?
ReplyDelete