GST OVERVIEW
- GST Meaning
- GST Features
- GST advantages
- Current Indirect Tax regime
- Shortcomings of current IDT regime
- GST Updates
CONCEPTUAL FRAMEWORK
Goods and Service Tax (GST) is a comprehensive Indirect Tax levied on goods and services consumed in an economy. GST is levied at every stage of the supply chain with eligibility of Input Tax Credit in respect of the tax remitted at previous stages. It is basically a tax on final consumption with tax being collected at each stage. To explain it in simple words, GST is a tax on supply of goods and services, which is levied at each point of supply of goods / services with a mechanism to claim input tax credit paid on procurement of goods or services.
EXAMPLE :
Let us understand the working of GST on a manufactured commodity from point of view of a manufacturer, wholesaler, retailer and final consumer.
Assuming GST rate is 20%.
| Stage of Supply Chain | Value of Supply | Rate of GST | GST on Output | Purchase Value of Input | Input Tax Credit (ITC) | Net GST Payable = GST on Output – ITC |
|---|---|---|---|---|---|---|
| Manufacturer to Wholesaler | 1500 | 20% | 260 | 1000 | 200 | 260 - 200 = 60 |
| Wholesaler to Retailer | 1300 | 20% | 300 | 1300 | 260 | 300 - 260 = 40 |
| Retailer | 1600 | 20% | 320 | 1500 | 300 | 320 - 300 = 20 |
The adoption of GST is perceived as a positive form of tax since it increases consumption and encourages savings and investments. It is a form of taxation which will be more evenly spread across the population, minimizing economic distortions by providing comprehensive coverage.
GST shall subsume various central and state indirect tax levies which is tabulated as under
CENTRAL LEVIES
- Central Excise Duty
- Additional Duties of Excise
- Service Tax
- Counter – Veiling Duty
- Special Additional Duty
- Central Sales Tax
- Excise Duty on Medicinal And Toiletries and Preparations
STATE LEVIES
- Central Excise Duty
- Additional Duties of Excise
- Service Tax
- Counter – Veiling Duty
- Special Additional Duty
- Central Sales Tax
- Excise Duty on Medicinal And Toiletries and Preparations
GST FEATURES
- The GST law prescribes the levy of CGST/SGST or IGST on supply of goods/services
- GST is a destination-based consumption levy. So, GST shall be levied by the originating state, however, collected by the receiving state.
- State-wise registration is required to be undertaken by every assesses.
- Uniform tax structure with lesser number of tax rates.
- Fungibility of input tax credits across goods and services.
- Few exemptions on goods and services.
- Single tax on each and every supply transaction instead of multiple central and state levies.
- In case of intra-state supply, SGST + CGST shall apply and in case of inter-state supply, IGST equivalent to the rate of SGST + CGST shall apply.
GST shall subsume various central and state indirect tax levies which is tabulated as under
IGST INPUT TAX CREDIT
- Towards IGST Output
- Towards CGST Output
- Towards SGST Output
CGST INPUT TAX CREDIT
- Towards CGST Output
- Towards IGST Output
SGST INPUT TAX CREDIT
- Towards SGST Output
- Towards IGST Output
ADVANTAGES OF GST TO INDIA
CURRENT INDIRECT TAX REGIME
| Tax / Duty | Incidence of tax | Assesse | Nature of tax | Rate of Tax | Government |
|---|---|---|---|---|---|
| Custom Duty | Import of goods into India | Importer | Destination based tax on goods | BCD – 10% CVD – 12.5% SAD – 4% |
Central Government |
| Excise Duty | Manufacture/Removal of goods | Manufacturer/First Stage Dealer | Origin based tax on goods | 12.5% 4 % |
Central Government |
| Service Tax | Provision/receipt of services | Dealer of such goods | Destination based tax on services | 15% | Central Government |
| CST | Inter – state sale of goods | Service provider/receiver | Origin based tax on goods | 2% 5% -15% |
Central Government |
| VAT | Intra – state sale of goods | Dealer of such goods | Destination based tax on goods | 1% -15% |
State Government |
| Entry Tax | Import of goods from other states | Importer (Dealer) of such goods | Destination based tax on goods | Rate varies locally | State Government |
| Entertainment Tax | Event providing entertainment | Entertainment provider | Destination based tax on entertaining events | Destination based tax on entertaining events | State Government |
| Octroi | Import of goods into municipal area | Importer (Dealer) of such goods | Destination based tax on goods | Rate depends on municipality where goods are consigned | Municipality |
SHORTCOMINGS OF CURRENT IDT REGIME – GST IN INDIA
Tax Cascading
The most significant contributing factor to tax cascading is the partial coverage by Central and State taxes. Wholesaler, retailer and range of services remain outside the ambit of the CENVAT and service tax levied by the Centre. The exempt sector is not allowed to claim for the CENVAT of the service tax paid on their inputs.
Similarly, under the State VAT, no credits are allowed for the inputs to the exempted sectors, which include the entire service sector and sale of exempted goods. Another major contributing factor to tax cascading is the CST on inter – state sales, collected by the originating state, for which no credit is allowed by any State Government.
Complexity in determining the nature of transaction – Sale vs. Service
The distinction between goods and services has become more complex. Transfer of software, copyrights, patents and other intangible goods are always in dispute: whether these are sales of goods or provision of services.
Further, goods, services, and other types of supplies are being packaged as composite bundles and offered for sale to consumers under a variety of supply-chain arrangements.Each Government can tax only a part of the bundle, creating a possibility of gaps or overlaps in taxation.
Lack of uniformity in rates of tax and other provisions
VAT rates, procedures, methods of computation and exemptions provided vary across states in India.
Fixation of situs– Local Sale vs.Central Sale
Whether a sale takes place in one State or another, i.e. to fix the situsof a sale transaction, is the major conflict, as its taxability affects the revenue of the State. Though CST is a tax levied by the Central Government, it is collected and retained by the collecting State. A significant number of litigation pertains to this issue.
Classification issues
Classification issues which impact the duty liability is a major issue for litigation under the current indirect tax regime. Also, to decide whether an activity is sale or works contract; sale or service, is a matter of much deliberation.
Complexities in Administration
There are many structural and design deficiencies of each of the taxes under the present regime of indirect taxes. Many of the administrative processes are still manual and are not automated. This leads to increased cost of compliance and also undermines revenue collection for the Government.