All you need know about draft GST Act, 2016

What is GST? Why is there a need for this bill?

The Goods and Services Tax bill, touted to be India’s biggest tax reform, will simplify the current system of taxation. The bill will convert the country into a unified market by replacing all indirect taxes with one tax.

Quite literally, GST (Goods and Services Tax) is a tax levied when a consumer buys a good or service. The current tax regime is riddled with indirect taxes which the GST aims to subsume with a single comprehensive tax, bringing it all under a single umbrella. The bill aims to eliminate the cascading effect of taxes on production and distribution prices on goods and services.

2. What is the cascading effect of taxation?

Cascading effect of taxes is caused due to levy of different charges by state and union governments separately. In the current multi-staged tax-structure, the following taxes are levied by the centre and state separately:

• Taxes levied by the Centre include: Income Tax, Service Tax, Central Sales Tax, Excise Duty and Security Transaction Tax
• Taxes levied by the State include: VAT / Sales Tax, Octroi, State Excise, Property Tax, Entry Tax and Agriculture Tax.

This tax structure raises the tax-burden on Indian products, affecting their prices, and as a result, sales in the international market. The new tax regime will therefore, help boost exports.

3. What are the challenges in the implementation?

India is adopting a dual GST, wherein the Central GST will be called CGST and State SGST. The main road block is the coordination among states.  Centre and States have to come to a consensus on uniform GST rates, inter-state transaction of goods and services, administrative efficiency and infrastructural preparedness to implement the new tax reform.

4. How will GST remedy the situation?

• GST will do away with Gordian knot of multiple tax-rates which is a burden on the common man. Dual GST means it will have a federal structure.

• The GST will basically have only three kinds of taxes – Central, State and another one called Integrated GST to tackle inter-state transactions.

• Under the current GST tax reform, all forms of ‘supply’ of goods and services like transfer, sale, barter, exchange, and rental will have a CGST (central levy) and SGST (state levy).

• GST will also help usher-in an era of a transparent and corruption-free tax administration. It is set to weed out the current shortcomings of the supply chain owing to the complicated, multi-layered policies.

Salient Features of GST Bill (June 2016)

1. GST rate not specified in the constitutional amendment bill, as desired by the Congress. Finance Minister Arun Jaitley said there was complete consensus at the empowered committee meeting that there should be no constitutional cap on the GST rate.

2. All forms of “supply” of goods and services such as sale, transfer, barter, exchange, license, rental, lease and import of services of goods and services made for a consideration will attract CGST (central levy) and SGST (state levy).

3. As GST will apply on “supply”, the erstwhile taxable heads such as “manufacture”, “sale” and “provision of services”, among others, will lose relevance.

4. The liability to pay CGST or SGST will arise at the time of supply.

5. With GST to be applicable according to whether a transaction is “intra-state” or “inter-state”, separate provisions are there to help an assessee determine the place of supply for goods and services.

6. States will draft their own State GST based on the draft model law with minor variations.

7. GST would be payable on “transaction value”, being the price actually paid or payable, and said to include all expenses in relation to sale, such as packing and commission.

8. As the threshold limit, the draft GST Bill proposes Rs 10 lakh, and for Northeast states and Sikkim, an amount of Rs 5 lakh.

9. The GST shall have two components: one levied by the Centre (hereinafter referred to as Central GST), and the other levied by the States (hereinafter referred to as State GST).

10. Rates for Central GST and State GST would be prescribed appropriately, reflecting revenue considerations and acceptability. This dual GST model would be implemented through multiple statutes (one for CGST and SGST statute for every State). However, the basic features of law such as chargeability, definition of taxable event and taxable person, measure of levy including valuation provisions, basis of classification etc. would be uniform across these statutes as far as practicable.

11. The Central GST and the State GST would be applicable to all transactions of goods and services made for a consideration except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits.

12. The Central GST and State GST are to be paid to the accounts of the Centre and the States separately. It would have to be ensured that account-heads for all services and goods would have indication whether it relates to Central GST or State GST (with identification of the State to whom the tax is to be credited).

13. Since the Central GST and State GST are to be treated separately, taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST.

14. A taxpayer or exporter would have to maintain separate details in books of account for utilization or refund of credit. Further, the rules for taking and utilization of credit for the Central GST and the State GST would be aligned.

15. Cross utilization of ITC between the Central GST and the State GST would not be allowed except in the case of inter-State supply of goods and services under the IGST model which is explained later.

16. Ideally, the problem related to credit accumulation on account of refund of GST should be avoided by both the Centre and the States except in the cases such as exports, purchase of capital goods, input tax at higher rate than output tax etc. where, again refund/adjustment should be completed in a time bound manner.

17. To the extent feasible, uniform procedure for collection of both Central GST and State GST would be prescribed in the respective legislation for Central GST and State GST.

18. The administration of the Central GST to the Centre and for State GST to the States would be given. This would imply that the Centre and the States would have concurrent jurisdiction for the entire value chain and for all taxpayers on the basis of thresholds for goods and services prescribed for the States and the Centre.

19. The present threshold prescribed in different State VAT Acts below which VAT is not applicable varies from State to State. A uniform State GST threshold across States is desirable and, therefore, it is considered that a threshold of gross annual turnover of Rs.10 lakhs both for goods and services for all the States and Union Territories may be adopted with adequate compensation for the States (particularly, the States in North-Eastern Region and Special Category States) where lower threshold had prevailed in the VAT regime. Keeping in view the interest of small traders and small scale industries and to avoid dual control, the States also considered that the threshold for Central GST for goods may be kept at Rs.1.5 crore and the threshold for Central GST for services may also be appropriately high. It may be mentioned that even now there is a separate threshold of services (Rs. 10 lakhs) and goods (Rs. 1.5 crore) in the Service Tax and CENVAT.

20. The States are also of the view that Composition/Compounding Scheme for the purpose of GST should have an upper ceiling on gross annual turnover and a floor tax rate with respect to gross annual turnover. In particular, there would be a compounding cut-off at Rs. 50 lakh of gross annual turnover and a floor rate of 0.5% across the States. The scheme would also allow option for GST registration for dealers with turnover below the compounding cut-off.

21. The taxpayer would need to submit periodical returns, in common format as far as possible, to both the Central GST authority and to the concerned State GST authorities.

22. Each taxpayer would be allotted a PAN-linked taxpayer identification number with a total of 13/15 digits. This would bring the GST PAN-linked system in line with the prevailing PAN-based system for Income tax, facilitating data exchange and taxpayer compliance.

23. Keeping in mind the need of tax payer’s convenience, functions such as assessment, enforcement, scrutiny and audit would be undertaken by the authority which is collecting the tax, with information sharing between the Centre and the States.

Read:

• Draft Model of Good and Service Tax Act 2016 (Model GST Law) is released on June 2016

• FAQs on Goods and Services Tax (GST)

Source : Mail received from reach@pioneerone.in

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