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    The Reformed Indirect Tax System GST

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    avi_sam1986
    The document discusses India's proposed Goods and Services Tax (GST) system. [1] GST is intended to replace existing indirect taxes and avoid cascading taxes. [2] It will combine taxes from the central and state governments into a single tax to be paid at each stage of production. [3] GST is expected to reduce business costs and prices while simplifying tax compliance.

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    The Reformed Indirect Tax System GST

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    avi_sam1986
    33 views4 pages
    The document discusses India's proposed Goods and Services Tax (GST) system. [1] GST is intended to replace existing indirect taxes and avoid cascading taxes. [2] It will combine taxes from the central and state governments into a single tax to be paid at each stage of production. [3] GST is expected to reduce business costs and prices while simplifying tax compliance.

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    The reformed indirect tax system GST

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    The document discusses India's proposed Goods and Services Tax (GST) system. [1] GST is intended to replace existing indirect taxes and avoid cascading taxes. [2] It will combine taxes from the central and state governments into a single tax to be paid at each stage of production. [3] GST is expected to reduce business costs and prices while simplifying tax compliance.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    33 views4 pages

    The Reformed Indirect Tax System GST

    Uploaded by

    avi_sam1986
    The document discusses India's proposed Goods and Services Tax (GST) system. [1] GST is intended to replace existing indirect taxes and avoid cascading taxes. [2] It will combine taxes from the central and state governments into a single tax to be paid at each stage of production. [3] GST is expected to reduce business costs and prices while simplifying tax compliance.

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    The reformed indirect tax system GST-Goods and service tax is proposed to implement on 1 st

    April 2010 in India. Several countries implemented this tax mechanism followed by France, the

    first country introduced GST. Goods and service tax is a


    new version of VAT which gives a comprehensive setoff for input tax credit and subsuming
    many indirect taxes from state and national level. The GST Implementation is not yet declared
    by government and the drafting of GST law is still under process and a clear picture will be
    available only after announcement of Implementation. As the name denotes the goods and
    service tax is integrated in GST for setoff benefit of Input tax credit.

    Why Goods and service tax?

    i. Avoid cascading effect of taxation

    One of the main reasons of the introduction of GST is to avoid cascading effect of taxes in India.
    For example manufacturing of a product attract CENVAT. The manufacturer pays CENVAT on
    goods produced. So the CENVAT element is loaded on the product. According VAT rules, the
    sales tax is payable on the aggregate selling price which include CENVAT. Here there is no set
    off benefits available. Likewise there are many situations in the nature of cascading effect for
    instance, State VAT on CST, Entry tax on VAT etc. Now Govt has decided to abolish tax on tax
    effect by implementing GST.

    ii. Shortfall of Existing VAT

    Indirect taxes like luxury tax, entertainment tax, are yet to be included in the VAT. These taxes
    are still existing and payable.

    iii. Shortfall of Existing CENVAT

    Several taxes like additional customs duty, surcharges not included under CENVAT.Input tax
    and service tax set off is out of reach to the manufacturer and dealers.

    Benefits of GST
    1. GST provide comprehensive and wider coverage of input credit setoff, you can use
    service tax credit for the payment of tax on sale of goods etc.
    2. CST will be removed and need not pay. At present there is no input tax credit available
    for CST.
    3. Many indirect taxes in state and central level subsumed by GST, You need to pay a single
    GST instead of all.
    4. Uniformity of tax rates across the states
    5. Ensure better compliance due to aggregate tax rate reduces.
    6. By reducing the tax burden the competitiveness of Indian products in international market
    is expected to increase and there by development of the nation.
    7. Prices of goods are expected to reduce in the long run as the benefits of less tax burden
    would be passed on to the consumer.
    8. Overall tax compliance cost will reduce for government and can concentrate on GST

    Indirect taxes subsumed under GST

    The following indirect taxes from state and central level is going to integrated with GST

    State taxes

    1. VAT/Sales tax
    2. Entertainment Tax ( unless it is levied by local bodies)
    3. Luxury tax
    4. Taxes on lottery, betting and gambling.
    5. State cesses and surcharges in so far as they relate to supply of goods and services.
    6. Entry tax not on in lieu of octri.
    7. Purchase tax ( This is not sure still under discussion )

    Central Taxes

    1. Central Excise Duty.


    2. Additional Excise Duty.
    3. The Excise Duty levied under the medical and Toiletries Preparation Act
    4. Service Tax.
    5. Additional Customs Duty, commonly known as countervailing Duty ( CVD)
    6. Special Additional duty of custums-4% ( SAD)
    7. Surcharges
    8. Cessess

    The above taxes dissolve under GST; instead only CGST & SGST exists.

    The GST model in India

    Many countries are following single GST. But it is proposed that dual CST is suitable for federal
    country like India. The end user, i.e. consumer cannot recover taxes but a business can recover
    by claiming input tax setoff.
    Dual GST

    Dual GST means, the proposed model will have two component called

    1. CGST – Central goods and service tax for levied by central Govt.
    2. SGST – State goods and service tax levied by state Govt.

    There would have multiple statute one CGST statute and SGST statute for every state.

    Taxable event

    Supply of goods and supply of services will be considered as taxable event under GST. Any
    economic activity which is not supply of goods is treated a supply of service.

    Tax payer identification number

    Each tax payer allotted a pan based identification number containing 13 or 15 digit number.

    Payment of tax

    The central GST would be paid to central and state GST paid to state government in the
    prescribed account head.

    Collection of GST

    It is same as VAT; Tax is collected on the basis of value addition on each stage of sale. Both
    CGST and SGST would have to be charged in an every service bill and sale bill and paid after
    adjusting input credit available on both.

    Input tax credit setoff

    The input tax credit of SGST can be utilized for the payment of SGST only and input tax credit
    on CGST can be utilized for the payment of CGST only. This means that cross utilization of
    input tax credit will not be allowed.

    Making it clearer; input tax credit of CGST cannot be utilized for the payment of SGST and vice
    versa. However there is an exemption for the above in the case of interstate transaction .For
    interstate transaction IGST is proposed and would be implemented along with CGST and SGST.

    Constitution amendment for levying service tax by the states

    The power of levying service tax is rest with central Government and a constitutional
    amendment is necessary for empowering states for levying service tax.

    Applicability of CGST and SGST


    The applicability of taxes is as usual there would be a prescribed limit of annual turnover, also
    some goods and services are exempted under GST. The dealer whose turnover is below
    prescribed limit need not pay tax.

    Threshold for annual turnover for goods and services would be 10 lakh for SGST and threshold
    of CGST for goods may be 1.5 crore and service would have a separate threshold that too will be
    appropriately high.

    GST rates

    The rate structure would be as follow;but not final

    1. A lower rates for essential commodities


    2. Standard rates for general goods
    3. Special rates for precious metals
    4. For services may be single rates for CGST and SGST.

    GST rates is not yet announced by government, however it is assumed that aggregate total of
    CGST & SGST would be 14 % to20%.

    Periodical return

    Taxpayer would have to submit periodical return as prescribed by law in common format for
    CGST and SGST.

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