■Before going for the study, let first have a glance over current tax scenario.■
1) Constitution of India has clearly demarcated the power of Centre and State for levy and collection of tax.
2) Centre is empowered to levy and collect central excise duty on manufacturing of goods (except alcohol for human consumption,narcotics, opium) while State has the power to levy and collect State VAT (value addition tax) on sale of such goods.
3) In case of inter-state sale, though the power to levy Central Sales Tax (CST) is with the Central Government (CG), but the originating state collects and retains the same.
4) For services, service tax is levied and collected by Centre.
5) While export is tax free, on import of goods to India, CG in order to counterbalance the effect of excise duty, CST, state VAT on domestic products, collects additional duties of custom.
◆ “No doubt that GST would be a very significant indirect tax reform in India.” ◆
◆GST intends to subsume most indirect taxes under a single taxation regime and hence it would mitigate cascading or double taxation in a major way.
◆But this would also require many amendments in the constitution as well.
■Scope of GST■
1) GST would be destination based instead of the present concept of origin based.
This means that it will be collected on consumption.
2) GST would be a single tax applicable on all goods and services except :-
~ alcohol for human consumption ~ ~ electricity
~ real estate
3) On petroleum products, it would be applicable from a later date as recommended by the GST Council.
4) Tobacco and tobacco products would also be subject to GST. In addition, Centre would continue to levy Central Excise Duty.
◆ Components of GST◆
1) GST would comprise of three components namely :-
~ CGST – which would be levied and collected by CG.
~ SGST – which would be levied and collected by SG.
~ IGST – which would be levied and collected by CG on Inter-state sale so as to maintain the credit chain.
《》NOTE – Import of goods and services would be treated as inter-state sale under the GST system and IGST would be collected by the Centre in addition to applicable Custom duties.
《》NOTE – Rates of CGST, SGST and IGST would be mutually agreed upon by the Centre and State.
2) Also for initial period of 2years or more, a non-vatable additional tax not exceeding 1% on inter-state supply of goods would be levied and collected by Centre and assigned to originating State.
This additional 1% tax would dilute the objective of creating a harmonized national market for goods and services.
Further, cascading of taxes will continue.
◆ Why GST?◆
If you get adequate credit of input tax against the tax liability on output, it will hamper your pocket less..!!
But non availability of Input Tax Credit (ITC) simply add up to your cost and thereby making the goods costlier as well as also leads to double taxation i.e. tax on tax.
‘These flaws in the present system gives birth to GST.’
◆ What about Credit? ◆
Credit to be utilised in following manner :-
1) ITC of CGST – against CGST.
2) ITC of SGST – against SGST.
3) ITC of CGST – against CGST,IGST in that order.
4) ITC of SGST – against SGST, IGST in that order.
5) ITC of IGST – against IGST,CGST,SGST in that order.
◆ Merger of taxes ◆
GST would subsume following taxes :-
1) central excise duty
2) additional duty of excise
3) additional duties of custom
4) special additional duty of custom
5) service tax
6) state VAT, central sales tax
7) luxury tax, entertainment tax
8) purchase tax , entry tax
9) tax on advertisements
10) tax on lotteries,betting and gambling
Lets discuss more in detail as needed.