Goods & Service Tax

GST- Overview The reformed indirect tax system GST-Goods and Service Tax is proposed to implement in INDIA on and from 1st April 2011 (Still not clear how the Government be doing this). Do you know, several countries implemented this tax mechanism followed by France which was the first country introduced GST. To simplify the understanding about the Goods and Service Tax (Papularly known as GST and hereinafter called as "GST") it may be called a new version of VAT which gives a comprehensive setoff for input tax credit and subsuming many indirect taxes from state and national level. The GST Implementation deadline is not yet cleared by government (i.e. 01/04/2011) and the clarification (within the Committee of State Finance Ministers) of draft of GST law is still under process and a clear picture will be available only after fresh announcement of Implementation is made by our Union Finance Minister Shri Pranab Mukherjee. As we all know the goods and service tax is integrated in GST for setoff benefit of Input tax credit. I would like to write down some key points in GST, it is sure that you must already be knowing these as of now. Why GST? I. Avoid cascading effect of taxation

One of the main reasons of the introduction of GST is to avoid cascading effect of taxes in India. For example manufacturing of a product attract CENVAT. The manufacturer pays CENVAT on goods produced. So the CENVAT element is loaded on the product. According to VAT rules, the sales tax is payable on the aggregate selling price which include CENVAT. Here there is no set off benefits available and VAT is levied on CENVAT (that is tax on tax element of selling price). Likewise there are many situations in the nature of cascading effect for instance, State VAT on CST, Entry tax on VAT etc. So the Govt must have decided to abolish tax on tax effect by implementing GST. II. Shortfall of Existing VAT

Indirect taxes like luxury tax, entertainment tax, (which are charged as extras to VAT) are yet to be included in the VAT. These taxes are still existing and payable. III. Shortfall of Existing CENVAT

Several taxes like additional customs duty, surcharges not included under CENVAT. Input tax and service tax set off (to a certain extent) is out of reach to the manufacturer and dealers.

Benefits of GST 1. GST provide comprehensive and wider coverage of input credit setoff, you will be able to use service tax credit for the payment of tax on sale of goods etc. 2. CST will be removed and need not to collect and pay. As we all know that at present there is no input tax credit available for CST. 3. Many indirect taxes in state and central level subsumed by GST, You will have to pay a single GST instead of all. 4. 5. 6. There is likely to be Uniformity of tax rates across the states (as proposed) It may ensure better compliance due to aggregate tax rate reduces. By reducing the tax burden the competitiveness of Indian products in international market is expected to increase and there by development of the nation. 7. There are good chances that prices of goods may reduce in the long run as the benefits of less tax burden would be passed on to the consumer. 8. Overall multi taxes compliance cost will reduce for government and can concentrate on GST Indirect taxes subsumed under GST The following indirect taxes from state and central level is going to integrated with GST State taxes 1. 2. 3. 4. 5. VAT/Sales tax Entertainment Tax (unless it is levied by local bodies) Luxury tax Taxes on lottery, betting and gambling. State cesses and surcharges in so far as they relate to supply of goods and services. 6. 7. 8. 9. 10. 11. Entry tax not on in lieu of octroi. Purchase tax (This is not sure still under discussion) Central Taxes Central Excise Duty. Additional Excise Duty. The Excise Duty levied under the medical and Toiletries Preparation Act Service Tax.

12.

Additional Customs Duty, commonly known as countervailing Duty ( CVD)

The above taxes dissolve under GST; instead only CGST & SGST exists.

Questions 1. Which are the Indirect taxes subsumed under GST? Source: http://www.taxmanagementindia.com/ Compiled by Peter Richard Jose richardpeterca@gmail.com 0 9995760377