2. Sundeep Gupta, FCA, DISA
ASA & Associates LLP (www.asa.in)
Corporate Catalyst India (www.cci.in)
GST – the game changer

3. Flow of Presentation
• INDIRECT TAX – PRESENT CONTEXT
• CHALLENGES IN THE PRESENT SYSTEM
• UNDERSTANDING GST
• THE INDIAN CONTEXT
• INDUSTRY EXPECTATIONS V. PROPOSED GST
• PLANNING BY INDUSTRY

4. INDIRECT TAX – PRESENT CONTEXT
CENTRE
• Excise
• Inter-State Sale
• Service tax
• Customs
STATES
• Intra-State Sale
• Entry tax
• Entertainment tax
• Luxury tax
• Stamp duty
• Excise on liquor
LOCAL
• Octroi
• Municipal tax

5. GENERAL
• Goods and services taxed separately
• Taxes on goods are termed as VAT at State level and CST at Central level; CST rate is
common across India ; VAT rates different based on levies by each State
• Input tax credit mechanism for taxation of goods with conditional cross-levy set-off
• Common rate across India services
• Excise levied on manufacture ; common rate across India
• Customs duty levied on import or export of goods ; common rate across India
• Various other State / Municipal level taxes viz. octroi, entry tax etc. ; different rates
based on levies by each State
INDIRECT TAX – PRESENT CONTEXT

6. EXCISE DUTY
• Levied on manufacture of taxable goods in terms of Central Excise Act, 1944 on goods
manufactured or produced in India except petro products and tobacco
• Administered by the Central Government under the authority of Entry 84 of the Union
List (List 1) under Schedule VII read with Article 226 of the Constitution of India
• The rates of duty, ad valorem or specific, are prescribed under the Schedule I and II of
the Central Excise Tariff Act, 1985
• The taxable event under the Central Excise Law is ‘manufacture’ and the liability of
Central excise duty arises as soon as goods are manufactured; payment only on removal
of goods
• Allows instant credit for all taxes paid on inputs as well as for countervailing duty
(CVD) under CENVAT Credit Rules, 2004
• Elimination of cascading effect through tax credit mechanism
• Integration of excise duty and service tax and set-off of one against another
• No integration of excise duty and CST/VAT
INDIRECT TAX – PRESENT CONTEXT

7. SERVICE TAX
• Levied on provision of taxable services
• No separate legislation; governed and administered by the Finance Act, 1994
• Administered by the Central Government under the authority of Residual Entry 97 of
the Union List (List 1) under Schedule VII of the Constitution of India
• Taxable event is provision of services; also levied on service to be provided viz.
advances received for provision of services
• Normally service provider responsible to pay tax; few cases the responsibility cast on
service receiver
• Elaborate rules to determine place of provision of service which is the critical factor for
taxability
• The CENVAT Credit Rules, 2004 provide for availing of set-off of service tax and
central excise duties paid on the input services/inputs/capital goods
• Duties of excise and the countervailing duties can be taken as credit for the payment of
service tax subject to conditions
• Cross levy set-off of service tax and CST/VAT is not permissible
INDIRECT TAX – PRESENT CONTEXT

8. SALES TAX / VAT
• Levied on sale of goods vide entry No. 92A of List I (Central list) of the Constitution
of India for CST; entry No. 54 of List II (State list) of the Constitution of India for
VAT
• Sales are divided into local sales, central sales (inter-state sales) and exports from or
import into India for taxation
• Local VAT levied on local sales of goods, or intra state sales of goods i.e sales of
goods within a state and taxed under local sales tax laws i.e VAT laws of each State
• Central sales tax levied on inter-state movement of goods from one state to another
under Central Sales Tax Act, 1956
• Concessional rate of tax is allowed under Central Sales tax Act on submission of
prescribed declarations/ certificates
• Tax is levied at each point of sale / resale
• Set-off permitted subject to conditions
INDIRECT TAX – PRESENT CONTEXT

9. CUSTOMS DUTY
• Levied on import or export of goods vide entry No. 83 of List I, Schedule VII of the
Constitution of India
• Administered by Central government vide Customs Act, 1962 and Customs Tariff Act, 1975
• Categories of items and the rates of duties specified in the Schedules to the Customs Tariff
Act, 1975
• Goods categorized in a systematic manner in accordance with an international scheme of
classification of internationally traded goods – termed ‘harmonized system of commodity
classification (HSN)’
• Rates of duties prescribed in First Schedule to Customs Act.
• Basic customs duty, additional duty (CVD), special additional duty (SAD) are the various
types of duties levied under the Customs law
INDIRECT TAX – PRESENT CONTEXT

10. OTHER TAXES
• Research & Development Cess (R&D Cess)
• Octroi & Entry tax
• Luxury Tax
• Tax on consumption or sale of electricity
• Lottery Tax
• Betting and gambling tax
• Stamp Duty
• Property Tax
• Toll tax, passenger tax and road tax
INDIRECT TAX – PRESENT CONTEXT

11. • Inefficiencies of tax cascading: full set-off of input taxes not available viz. exempt
sectors; specific input taxes; cross set-off between excise/service tax with VAT
• Interpretational issues relating to levy on manufacture: definitional issues of
manufacturing; deemed manufacturing; valuation issues
• Sale v. service: increasingly becoming complex; frequently leads to overlap between
Centre and States; vested motive of States to tax as goods
• Multiplicity of State laws: lacks uniformity in rates, procedures, exemptions
• Local sales v. Central sales: conflict between Centre and States to tax any sale
• Interpretational issues: Sale v. works contract; multiple litigations
• Complex administration: lack of automation; uniformity; knowledge
CHALLENGES IN PRESENT SYSTEM

12. COMMON PRINCIPLES
• Destination based common tax on both goods and services levied at each stage of value
addition
• Coverage of all types of goods and services ; very limited items excluded
• Multiple tax rates and multiplicity of taxes reduced leading to simpler tax regime and
administrative efficiencies
• Allows input credit for taxes paid on purchases uniformly
• Common national market eliminating state boundaries
• Eliminates interpretational issues between goods and services
• Emphasis on voluntary compliance
UNDERSTANDING GST

13. MERITS OF THE SYSTEM
• Abolition of multiple taxes, reduced administrative cost to Government
• Reduction in compliance cost with increased voluntary compliances
• Removal of cascading effects of taxation reduces litigation and corruption
• Reduced cost of production of goods and services
• Increase in demand of goods and services
• Widens the tax base and increase in tax revenue
• Avoidance of interpretational issues between goods and services; valuation principles
UNDERSTANDING GST

14. Standard Models
Central GST State GST Dual GST
GST to be levied by
Centre
GST to be levied by
States
GST to be levied by
the Centre and states
concurrently
UNDERSTANDING GST
Australia, Germany,
Denmark
Brazil, CanadaUSA

15. CENTRAL GST
• Two levels of Government combine their levies in the form of single National GST,
with appropriate revenue sharing arrangements among them
From the Indian perspective:
UNDERSTANDING GST
MERITS DEMERITS
• Comprehensive base for single rate of tax
• Removal of cascading effect of taxation
• Single statute instead of multiple, reducing
compliance cost
• Common market; Free movement; no check-
posts, internal tax frontiers or other barrier
to trade
• Single tax authority; compliance with only
one tax
• Customer will know the tax burden falling
on them
• Requirements for drastic amendments in
Constitution of India
• Change required in entire infrastructure
developed for taxation at both levels
• States may not agree to give up powers of
taxation ; worries about loss of revenue
• May upset the present concept of fiscal
federalism

16. STATE GST
• States alone levy GST and the Centre withdraws completely
From the Indian perspective:
UNDERSTANDING GST
MERITS DEMERITS
• Comprehensive base for single rate of tax
• Removal of cascading effect of taxation
• Enhances revenue capacity of the states
• Reduced dependence on the Centre
• Impairment in Centre’s revenues
• Requirements of major amendments in
Constitution of India
• May not be revenue neutral for individual
states
• Compliance requirements for separate state
tax laws
• Unhealthy competition among different
states
• Change required in entire infrastructure
developed for taxation at both levels

17. Dual GST
Non –Concurrent Dual GST Concurrent Dual GST
GST on goods levied by States only
and services are taxed by Centre
only
Centre to play only coordinating
role for monitoring and application
of tax on inter-state services
Cascading can be eliminated by
States by allowing input tax credit
of tax levied by Centre
GST to be levied by both tiers of
Government concurrently
GST to comprise Central GST and
State GST
CGST to subsume Central taxes
and SGST to subsume State level
taxes
CGST to be administered by Centre
and SGST by States
UNDERSTANDING GST

18. DUAL GST – CONCURRENT MODEL
From the Indian perspective:
UNDERSTANDING GST
MERITS DEMERITS
• Achievable in short term with no significant
changes required in current indirect tax
structure
• Removal of cascading effect of taxation
• Balance between fiscal autonomy of Centre
and States
• Empowerment to both Centre and States to
levy taxes
• Requirements of least changes in
infrastructure
• Improves competitive environment for
MNC’s
• Cost reduction for customers
• Compliance costs may not reduce
significantly
• Uncertainties may exist on part of States
• Challenge of sharing revenue on inter-state
transactions
• Taxation of services provided nationwide at
State level may pose challenge

19. Country GST/VAT Rate (%)
Japan 5
Singapore 7
Canada 7
Australia 10
Germany 16
France 19.6
UK 20
Sweden and Denmark 25
UNDERSTANDING GST
GST WORLDWIDE

20. THE BEGINNING
• In 2000, the Vajpayee Government started discussion on GST by setting up an empowered
committee. The committee was headed by Asim Dasgupta (Finance Minister, Government
of West Bengal). It was given the task of designing the GST model and overseeing the IT
back-end preparedness for its rollout
• Recommendation by Dr. Kelkar Task Force for implementation of National GST
• The Empowered Committee of State Finance Ministers issued the first discussion paper on
goods and service tax in India on November 10, 2009
• Announcement made by the then finance minister in the central budget (2007-08) to the
effect that GST would be introduced with effect from April 1, 2010
• After this announcement, the Empowered Committee of State Finance Ministers set up a
Joint Working Group on May 10, 2007
• The Joint Working Group got itself divided into three Sub-Groups and had several rounds
of internal discussions as well as interaction with experts and representatives of Chambers
of Commerce & Industry
THE INDIAN CONTEXT

21. THE BEGINNING
• On November 19, 2007, the Sub-Groups submitted their reports which were then integrated
and consolidated into the report of Joint Working Group
• On the basis of this report the Empowered Committee prepared and sent their report to
Government of India on April 30, 2008. The comments of Government of India were
received on December 12, 2008
• The views were submitted and were accepted in principle by the Empowered Committee on
January 21, 2009
• During this period, an important interaction took place between the then Union Finance
Minister and the Empowered Committee on the related issue of compensation for loss to
the States on account of phasing out of CST. The Empowered Committee took a detailed
view on the recommendations of the Working Group of officials and other related matters.
This detailed view was presented in terms of the First Discussion Paper
THE INDIAN CONTEXT

22. HOW THINGS MOVED
THE INDIAN CONTEXT
2004 Dr. Kelkar Task
Force recommended the
need of a National GST
Jan. 2007 First GST study
released by Dr. Shome
2007 Consultation with
stakeholders on GST
Model
Nov. 2007 13th Finance
Commission Constituted
May 2007 Joint Working
Groups appointed by EC
April 1, 2007 CST phase
out started
Nov. 2007 Joint Working
Groups submitted
Report
Feb. 2008 F.M.
announced introduction
of GST from 1.4.2010 in
Budget Speech 2008-09
April 2008 Empowered
Committee (EC) finalized
its views on GST
Structure

23. THE INDIAN CONTEXT
July 2009 F.M.
announced Dual GST
from April 1, 2010 in
Budget Speech 2009-10
Oct. 2009 13th Finance
Commission submitted
its Report
Nov. 2009 Release of
First Discussion Paper on
GST
NSDL chosen as the
technology partner for
operating the structure
Nandan Nilekani given
the responsibility for
creating the required IT
structure
Consultation on Model
of inter-State
transactions, RNR and
other issues – In
progress
July 2014 : Commitment
by the new Government
for GST
Dec 2014 : 122nd
Constitutional
Amendment Bill
presented
2015 : Government
committed to roll out
GST by April 2016
HOW THINGS MOVED

24. • GST is proposed to be implemented from April 2016
• Dual GST proposed to replace different indirect taxes levied on goods and services by
the Central and State governments.
• To be implemented concurrently by the Central and State governments
• Aimed at being comprehensive for most goods and services
• Alcoholic liquor for human consumption, real estate and electricity to be kept out of
GST
• Petroleum products to be brought within ambit from a future date
• Exports to be zero-rated and imports will be levied the same taxes as domestic goods
and services adhering to the destination principle
• Taxing of capital goods and inputs whether goods or services relatable to manufacture at
lower rate, so as to reduce inventory carrying cost and cost of production
• Common law and procedures throughout the country expected
THE INDIAN CONTEXT
THE PROPOSED SCHEME

25. THE INDIAN CONTEXT
TAXES TO BE SUBSUMED
GST
Excise
Duty
Service
Tax
CST
Local VAT
Local
Entry Tax/
Octroi
Local Cess
& levies
CVD/
SAD

26. THE INDIAN CONTEXT
THE MODEL
GST
INTRA-
STATE
CGST SGST
INTER-
STATE
IGST

27. THE INDIAN CONTEXT
THE MODEL
• Called Central GST
• To be levied by Centre
• Applicable on Intra-state supply of goods and services
• Central taxes to be subsumed here
CGST
• Called State GST
• To be levied by State
• Applicable on Intra-state supply of goods and services
• State taxes to be subsumed here
SGST
• Called Integrated GST
• To be levied by Centre
• Applicable on Inter-state supply of goods and services
• Expected to be aggregate of CGST + SGST
• CST to be subsumed here
IGST

28. THE INDIAN CONTEXT
THE MODEL
TRANSACTION INTRA-STATE INTER-STATE
Sale price of taxable goods or services 100 100
CGST 10 -
SGST 10 -
IGST - 20
Invoice Value 120 120
Presumed tax rates to be:
- CGST 10%
- SGST 10%
- IGST 20% (aggregate of CGST & SGST)

29. Taxes/Duties to subsume in CGST Taxes/Duties to subsume in SGST
Central Excise Duty
Service Tax
CVD as levied u/s 3(1) of Custom Act
Special Addl. duty as levied u/s 3(5) of Custom Act
Cesses levied by the Union (on rubber, tea etc.)
Surcharges levied by the Union
E.g. NCCD, Education Cess, Special Additional
Duties of Excise on Motor-Spirit and High Speed
Diesel (HSD).
Value Added Tax (VAT)
Purchase Tax
State Excise Duty (except on liquor)
Entertainment Tax (unless levied by the local bodies)
Luxury Tax
Octroi
Entry tax in lieu of Octroi
Taxes on Lottery, Betting and Gambling
Taxes/Duties not to subsume in CGST Taxes/Duties not to subsume in SGST
Basic Custom Duty (Import as well as Export)
 Excise Duty on Tobacco Products
 Specific Cess (as may be notified)
 Specific Central Cess like Education and Oil Cess
Taxes on Liquors
 Toll Tax / Road Tax
 Property Tax as well as Environment Tax
 Stamp Duty and Tax on Consmp./sale of electricity
THE INDIAN CONTEXT
TAXES TO BE SUBSUMED / LEFT OUT

30. THE INDIAN CONTEXT
TAX CASCADING BENEFITS
• IGST
• CGST
• SGST
Liability of IGST against
• IGST
• CGSTLiability of CGST against
• IGST
• SGSTLiability of SGST against

31. THE INDIAN CONTEXT
TAX CASCADING BENEFITS
• Input tax set-off benefits available completely except for between CGST and SGST
• Present system does not allow set-off between:
 Excise/service tax/CVD against VAT/CST
 CST against any output liability
 Excise and service tax offsets also conditional in many cases
• VAT is presently levied on Excise component also
• No set-off presently permitted against States taxes like Octroi, Entry tax, Luxury tax,
Entertainment tax
Cost of goods expected to fall under new regime ; cost of services to go up

32. • Uniform procedures for collection of both CGST and SGST
• Common format of returns for both CGST and SGST to both the Central Authority
and State Authority
• Each taxpayer to be allotted a PAN Linked taxpayer identification number with a
total of 14-15 digits which will bring GST as a PAN Linked system in line with
prevailing PAN based system of Income tax, facilitating data exchange and taxpayer
compliances
• Tax payment challan might contain some additional information and taxes may be paid
only through online mode
• Single registration within a state ; multiple registration across states
• Inter-state branch transfers may be taxed
• Issues of input accumulation resulting into refunds shall be avoided except in case of
exports, purchase of capital goods, input tax at a rate higher than output tax rate
• Separate assessments across states
THE INDIAN CONTEXT
SALIENT FEATURES EXPECTED

33. • Threshold limits may be:
 Between INR 1 ~ 2 million for coverage
 Gross turnover of goods upto INR 15 million – assigned exclusively to State
 Gross turnover of services upto INR 15 million – assigned exclusively to Centre
 Gross turnover of both exceeding INR 15 million – assigned to both Centre and
State
• Threshold limits built to keep small organizations out of tax net since:
 Difficult to administer small traders
 Administrative costs higher in comparison to the tax collected
 Compliance cost and effort savings for such organisations
• Set-off to be provided against invoice or payment of tax or both (hybrid system)
THE INDIAN CONTEXT
SALIENT FEATURES EXPECTED

34. • Exempted goods and services will not have the benefit of input tax set-off
• Place of Supply Rules to determine the situs of taxable supply; to be released shortly for
public
• Optional compounding scheme expected for small taxpayers; threshold may be INR 6
million
• Rates to be separate for:
 General rate for general items of goods and services
 Merit rate for essential goods and services
 Special rate for precious metals
 NIL rate
• 1 per cent additional tax proposed for few years on inter-state supply which will not be
available for set-off
Rates expected to be:
12% to 20% for the 1st year
12% to 18% for the 2nd year
16% for the 3rd year and onwards
16% from inception for service sector
THE INDIAN CONTEXT
SALIENT FEATURES EXPECTED

35. • Constitutional Amendment: Political scenario
• Framing Acts & Rules: Time has to be given public review; acceptance by States
• Common law: States should not come up with different regulations
• Online backbone: Building up online platforms across the States for seamless
integration of information; management of input tax credits; payment of taxes; filing of
returns; quick registrations
• Threshold: Determination should not be so low to bother small scale traders or service
providers; or high to lead to loss of tax revenue
• Taxes not subsumed: those left out will continue to have impact on costs
• Legislations: Multiplicity of statutes at State level
• Administration: Multiple administrative bodies – separate for Centre and each State
• Tax Rates: Arriving at Revenue Neutral Rate (RNR) so as not to impact inflation
• Exempt v. zero rated: identifying goods and services under each category
• Taxability: framing of suitable rules for place of provision for determining taxability
• Compensation to States: suitable packages to be framed to bring in consensus for
implementation
• Training: of government employees for GST
THE INDIAN CONTEXT
THE CHALLENGES

36. THE INDIAN CONTEXT
THE PRESENT AND THE FUTURE
Basis For
Difference
Present Taxation GST
Structure Difference Separate tax systems for Centre &
State based on manufacture and sale ;
separate for goods and services
Single system based on taxable supply
of both goods and services
Place of Taxation Taxable at the place of sale
of goods or rendering of
Service
Taxable on destination as it is a
consumption based tax
Customs Duty Separate Act of Centre; at the time
of import having BCD, CVD and
SAD components
Only BCD to remain; others to be
subsumed
Inter-State sale
Inter-branch transfers
Exempt against Form F
Not taxable
To be taxable
May become taxable
Input taxes set-off Not allowed between Excise/Service
tax and VAT
To be allowed

37. • Stability: No frequent changes in regulations or rates
• Government employees: Clear definition of roles, responsibility, authority & accountability
between Central and State departments with thorough understanding of new laws
• Single administering authority: Avoid multiple governing departments; interaction with
single authority for registrations, assessments
• Input tax set-off: Seamless integration permitting claims
• Online backbone: Strong and stable computerized platforms
• Trainings: State officers don’t know service tax, excise and custom laws and central officers
don’t know VAT laws
• Uniformity: Rates of tax, regulations, across the states including for registration, invoice
formats, return filings, assessments, audits
• Cross set-off: between CGST and SGST
• Backlog: Suitable scheme to clear backlog of pending cases under excise, VAT, service tax
INDUSTRY EXPECTATIONS

38. • Cost of implementation of GST
• Review of accounting system capabilities
• Supply chain relook to negotiate better contractual price
• Inventory holding costs due to taxation of inter-branch transfers
• Cash flow issues due to higher tax rate on services
• Hiring / training of employees
PLANNING BY INDUSTRY