With barely over four months left for the roll-out of the goods and services tax (GST), the government has proposed that the new tax regime should subsume most central indirect levies like excise and service tax as well as state taxes like VAT, making it easier for business and industry.
The government released a discussion paper prepared by the Empowered Committee of their finance ministers in New Delhi which said the GST should also replace cesses and surcharges at both the central and state levels.
As per the proposal in the first discussion paper, exports will be zero-rated or exempted from payment of GST. Special economic zones will also be given a similar benefit. It proposed that exports from SEZs would not attract GST, but sales from SEZ to domestic markets will draw the tax.K
At present, exporters are being reimbursed only central taxes paid by them through various input duty reimbursement schemes. The taxes levied by the states are not being reimbursed, adding to their cost of production.
For imports, the committee has proposed a levy of both the central GST and state GST. While this could increase the landed cost of imports, full and complete setoff will be available on the GST paid on import of goods & services.
But the much-talked about discussion paper did not give any idea about rates and the items to be included in it. Key sectors such as real estate and electricity are also missing in the document.
However, It made some specific suggestions such as alcohol and petroleum tax should be out of GST, while tobacco be included in it.
When asked about whether GST would be rolled out from April one, 2010, Finance Minister Pranab Mukherjee, present on the occasion evaded a direct reply.
"So far as dates are concerned, we are working on it," he said.
Making it clear that the discussion paper is by the states, Mukherjee said "These are the views of the empowered committee of state finance ministers. We will also look into it,"
Doubts over the GST introduction has lingered for sometime now, and Haryana on Tuesday came out with an official statement saying the Centre should defer the rollout by a year.
The state also asked for compensation for the loss of revenue of Rs 600 crore on account of the purchase tax levied on foodgrains like wheat and paddy.
Gujarat has said that time available to introduce GST from the proposed date is not adquate and the time frame need to be recast.
The discussion paper suggests that among central taxes, additional excise duty, additional customs duty, and special additional duty be replaced by the GST.
State taxes like entertainment tax, except for the one levied by local bodies, luxury tax, taxes on lottery, entry tax except octroi are proposed to be out once the new tax regime is introduced.
It also suggests that industrial incentives in the form of tax exemptions should be converted into cash refund schemes.
Summary of GST draft paper:
Basic framework
► Dual GST Model (Central GST and State GST) to be implemented through multiple statutes (one for CGST and SGST statutes for individual states)
► Basic features such as chargeability, definition of taxable event, taxable person, valuation, classification etc, to be uniform across statues as far as practicable
► CGST and SGST applicable on all transactions of goods and services for consideration except exempt goods and services, goods and services outside the purview of GST and transactions below threshold limits
Credit and refund
► Cross credits between CGST and SGST generally not permissible except in case of interstate supply of goods and services under the IGST model.
► Separate books to be maintained for utilization or refund of credit. Rules for taking and utilization of credit for CGST and SGST would be aligned
► Credit accumulation on account of refund of GST to be avoided by both Centre and States except in cases such as export, purchase of capital goods, input tax higher than output tax etc where refund/ adjustment to be completed in a time bound manner
Threshold limits
► Threshold limit under SGST for goods and services may be adopted of INR 10 lakhs
► Threshold limit under CGST for goods may be kept of INR 1.5 crores, and for services may be kept appropriately high (not specified)
► Composition/ compounding cut-off of INR 50 lakhs and floor rate of 0.5% across states. Scheme to allow option for GST registration to dealers with turnover below compounding cut off
Administration and compliances
► Administration of CGST to be given to the Centre and of SGST to the states
► Periodical returns to be filed before the respective CGST and SGST authorities in common format as far as possible
► PAN Based Identification Number with a total of 13/ 15 digits
Taxes to be subsumed to begin with
► Central levies to be subsumed
Central Excise Duty, Additional Excise Duty, Excise duty under Medicinal and Toiletries Preparation Act, Additional Customs Duty (CVD) and Special Additional Custom Duty (SACD), Service Tax, Surcharges and Cess
► States Levies to be subsumed
VAT, Sales Tax, Entertainment Tax (not levied by local bodies), Luxury Tax, Taxes on lottery, betting and gambling, State Cesses and Surcharges relating to supply of goods and services, Entry tax (not in lieu of octroi)
► Taxes, levies and fees not specifically related to goods and services should not be subsumed under GST
► Alcoholic beverages and petroleum products to be kept out of GST
► Tobacco products to be subject to GST with input tax credit
► View on whether natural gas to be kept outside GST to be taken after further deliberations
Inter-state transaction of goods and services
► All inter-state transactions of goods and services to attract IGST which would be CGST + SGST
► Appropriate provisions to be made for consignment and stock transfer of goods and services
► Inter-state seller to pay IGST after adjusting credit of IGST, CGST and SGST
► Importing dealer can claim IGST credit and utilize the same against its output tax liability in his own state
GST Rate Structure
► SGST - Two rate structure – lower rate for necessary items and goods of basic importance and Standard rate for goods in general. Further, special rate for precious metals and list of exempted goods will be prescribed
► It is being discussed whether goods presently under the exempted list under State VAT regime including Goods of Local Importance should be retained under SGST and CGST
► CGST in relation to goods: also likely to be under two rate structure in conformity with SGST
► Taxation of services: single rate for both CGST and SGST
Exports and imports
► Exports to be zero rated. Supplies to SEZ (only processing zones) also to be zero rated
► CGST and SGST to be levied on import of goods and services into the country
► Tax Revenue in case of SGST will accrue to the state where the imported goods and services are consumed
► Full and complete set-off will be available of GST paid on import of goods and services
Special Industrial Area Scheme (‘SIAS’)
► Tax exemptions, remissions etc related to incentives should be converted into cash refund schemes
Constitutional Amendments, Legislations, Rules for administration
► A committee has been formed to prepare the draft legislation for Constitutional amendment, draft legislation for CGST, a model legislation for SGST
► Specific provisions to be made to address the issues of dispute resolution and advance ruling
Date of implementation and GST rates
► Effective date of GST implementation, rate of GST, and similar other aspects will be known in the course of appropriate legislative actions.
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