Present Taxation Vs. Expected GST - A Comparitive Analysis

Vishal Jain A , Last updated: 27 June 2015
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Introduction

India has a federal structure of government where the powers are shared between the Central Government and the State Governments. At The taxes are levied by Central Government as well as State Government for different transactions. The present structure of indirect taxation have a lot of shortcomings such as tax cascading effect, inability of States to levy service tax, levy of excise duty by Centre only at manufacturing point, complexity in determining the nature of transaction (sale vs. service), difficulty in determining whether the sale is local sale or inter-state sale, interpretational issues as to whether an activity is sale or service or works contract, non-uniformity in provisions and rates in State VAT laws, complexities in administration, narrow tax base, etc.

It is expected the proposed GST structure model would preserve and protect the fiscal powers of the States & Union and at the same time it will address all the above-mentioned shortcomings of the present structure of indirect taxation by subsuming a plethora of Central and State taxes into a consolidate levy of GST.

PRESENT TAXATION VS. EXPECTED GST

PARTICULARS	PRESENT TAXATION	EXPECTED GST
Structure
Structure	Tax on goods is levied at 2 levels, Centre (CENVAT) and State (VAT), and tax paid under one (input tax credit) is not available as set-off against the other. Tax on services is levied by Centre under separate legislation. No comprehensive taxation of services at State level except that few services are taxed under separate enactments. Imports in India are not subjected to VAT or CENVAT.	A dual tax with both Central GST (CGST) and State GST (SGST) would be levied on the same. Thus, all the goods and services, barring a few exceptions, will be brought into the GST base. There would be no distinction between goods and services for the purpose of GST with a common legislation applicable to both. GST would allow seamless tax credit at all levels till the goods or services reaches the consumer.
Tax Base	Narrower	Will be comparatively Wider
Place of Taxation	Taxable at the place of sale of goods or provisioning of services	Consumption (Destination) based tax
Duties / Taxes
Excise Duty	Imposed by Centre under separate Act Taxable Event: Manufacture of Goods Taxed up to Manufacturing Point	To be subsumed in GST and subjected to CGST & SGST (Local Supply) / IGST (Inter-State Supply) Taxable Event: Supply of Goods To be taxed Retail Level
Service Tax	Imposed by Centre under separate Act Taxable Event: Provision of Service	To be subsumed in GST and subjected to CGST & SGST (Local Supply) / IGST (Inter-State Supply) Taxable Event: Supply of Services
State VAT	Imposed by States Taxable Event: Sale of Goods within the State	To be subsumed in GST and subjected to CGST & SGST Taxable Event: Supply of Goods within the State
Central Sales Tax	Imposed by Centre under separate Act but Collection assigned to States Taxable Event: Sale of Goods from one State to another State	To be subsumed in GST and subjected to IGST (Centre) Taxable Event: Supply of Goods from one State to another State CST may continue initially and it will be phased out gradually with time (Additional Tax up to 1% in form of CST may be there along with IGST)
Basic Customs Duty	Imposed by Centre under separate Act Taxable Event: Import of Goods	- No Change -
CVD / SAD	Imposed by Centre under separate Act Taxable Event: Import of Goods	To be subsumed in GST and subjected to IGST (Centre) Taxable Event: Import of Goods
Power to levy Duties / Taxes
Power to levy tax on Manufacture of Goods	Excise Duty by Centre	No such powers in GST
Power to levy tax on Provision of Services	Inter-State Provision of Services Service Tax by Centre Local Provision of Services Service Tax by Centre	Inter-State Supply of Services IGST by Centre Local Supply of Services CGST & SGST by Centre & State
Power to levy tax on Sale of Goods	Inter-State Sale of Goods CST by Centre Local Sale of Goods VAT by States	Inter-State Supply of Goods IGST by Centre Local Supply of Goods CGST & SGST by Centre & State
Power to levy tax on Import of Goods or Services in India	Import of Goods Basic Customs Duty by Centre CVD and SAD by Centre Import of Services Service Tax by Centre	Import of Goods Basic Customs Duty by Centre IGST by Centre Import of Services IGST by Centre
Tax on Special Transactions
Tax on Export of Goods and Services	Exempt / Zero-rated	- No Change -
Tax on Inter-State Sale of Goods / Provision of Services	Imposed by Centre (CST on Inter-State Sale of Goods and Service Tax on Inter-State Provision of Services)	To be subsumed in GST and subjected to IGST (Centre)
Tax on Inter-State Transfer of Goods to Branch or Agent	Exempt against Form F	To be taxable
Tax on Transfer of Goods to Branch or Agent within the State	Generally Exempt	Might be taxable, unless BIN (Business Identification No.) of transferor and transferee is same
Credit / Set-off
Cross-Levy set-off	Excise Duty and Service Tax: Cross set-off is allowed Excise Duty and VAT: Cross set-off is not allowed Service Tax and VAT: Cross set-off is not allowed	IGST and CGST: Cross set-off is allowed IGST and SGST: Cross set-off is allowed CGST and SGST: Cross set-off is not allowed
Cascading Effect	Allows tax credit between Excise Duty and Service Tax, but no credit for VAT	Will have seamless tax credit
Non-Creditable Goods	Exists	Might exist
Credit on Inputs used for Exempted Activities	Not allowed	- No Change -
Procedural Aspects
Excise Duty – Threshold Limit	Rs.1.5 Crores	Rs.10 Lakhs to Rs.20 Lakhs
VAT – Threshold Limit	Rs. 5 Lakhs to Rs.10 Lakhs	Rs.10 Lakhs to Rs.20 Lakhs
Service Tax – Threshold Limit	Rs.10 Lakhs	Rs.10 Lakhs to Rs.20 Lakhs
Classification of Commodities	Excise Duty: HSN VAT: None	HSN
Registration No.	Excise Duty: PAN Based Service Tax: PAN Based VAT: Simple TIN (Some States, it is PAN Based)	PAN based BIN (Business Identification No.)
Procedures for Collection of Tax and Filing of Return	Excise Duty and Service Tax: Uniform VAT: Varies from State to State	Will be uniform
Administration	Complex due to number of taxes	Will be comparatively Simple
Use of Computer Network	Very minimum Just started by the States	Extensive It is necessity for GST implementation
Exemptions, Forms and Other Aspects
Various Exemptions – Excise Free Zone or VAT Exemption	Exists	May go away in a phased manner
Exemption for transit Inter-State Sale and High Sea Sales	Exists	Might be taxable
Transactions against Declaration Forms	Exists under CST Act, 1956	Will be abolished
Taxation on Govt. and Non-Profit Bodies	Partially taxed and Partially exempted	Might not change
Stamp Duty	Presently taxed concurrently by the Centre and the States	Status of the same is not clear If subsumed under GST, a big relief to real estate sector as to claiming input tax credit
Electricity Duty	Presently taxed by States	Status of the same is not clear
Litigations	Sale vs. Service Local Sales vs. Inter-State Sales Classification of Goods Interpretational Issues Sale vs. Service vs. Works Contract Valuation of Composite Transactions, etc.	Will be reduced provided GST Laws are properly drafted

INDIRECT TAXES ON GOODS

PRESENT TAXATION

EXPECTED GST

Intra-State (i.e. Local) Sales of Goods

Manufacturer

Excise Duty (Centre) and VAT (State)

Trader

Only VAT (State)

Manufacturer as well as Trader

CGST (Centre) & SGST (State)

Intra-State Stock-Transfer of Goods

Manufacturer

Excise Duty (Centre)

Trader

No VAT

Manufacturer as well as Trader

CGST (Centre) & SGST (State)

(STATUS NOT YET CLEAR)

Inter-State Sales of Goods

Manufacturer

Excise Duty (Centre) and CST (Origin State)

Trader

Only CST (Origin State)

Manufacturer as well as Trader

IGST (Centre) in addition to 1% Additional Tax / CST (Origin State)

Inter-State Stock-Transfer of Goods

Manufacturer

Excise Duty (Centre)

Trader

No CST

Manufacturer as well as Trader

IGST (Centre) in addition to 1% Additional Tax / CST (Origin State) for Manufacturer as well as Trader

Import of Goods

Importer (i.e. Buyer)

Basic Customs Duty (Centre), CVD (Centre) and SAD (Centre)

Importer (i.e. Buyer)

Basic Customs Duty (Centre) and IGST (Centre)

Note: Additional Tax up to 1% levied by Origin State would NON-VATTABLE just like CST.

INDIRECT TAXES ON SERVICES

PRESENT TAXATION

EXPECTED GST

Intra-State (i.e. Local) Provision of Services

Service Provider

Service Tax (Centre)

Service Provider

CGST (Centre) & SGST (State)

Intra-State Provision of Services from HO to BO

Service Provider

No Service Tax

Service Provider

CGST (Centre) & SGST (State)

(STATUS NOT YET CLEAR)

Inter-State Provision of Services

Service Provider

Service Tax (Centre)

Service Provider

IGST (Centre)

Inter-State Provision of Services from HO to BO

Service Provider

No Service Tax

Service Provider

IGST (Centre)

Import of Services

Importer (i.e. Service Recipient)

Service Tax (Centre)

Importer (i.e. Service Recipient)

IGST (Centre)

Conclusion

Though, most of the goods and services would be subsumed in GST, a few goods such as alcoholic liquor and petroleum products (till it is notified by GST Council) will be kept outside the purview of GST. Clarity is required with respect to taxation of goods like alcoholic liquor, petroleum products and tobacco in different scenarios. Clarity is also required when the goods are stock transferred and when services are provided by HO to BO or vice versa.

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Author: Vishal Jain A, B.Com., ACA, ACS
Email: ca_va_jain@yahoo.com