Goods and Services Tax (in short ‘GST’) is by far one of the most awaited tax reforms in the country. With the emerging consensus amongst the political parties and the push voiced by the industry, there is a lot of expectation that the Constitutional Amendment Bill will be passed in this Monsoon Session. If this happens, the Government is likely to push the implementation of GST with effect from 1st April 2017.
Though GST is a tax reform, it is going to impact every sphere of business activity, be it procurement, supply chain, IT, logistics, pricing, margins, working capital, etc. as a number of business decisions taken based on the current tax structure may no longer be relevant in the new GST regime.
What we have in the public domain now is the draft GST law and the four business processes on Registration, Returns, Payments and Refunds which gives a fair idea on the basic construct of the GST structure. What is awaited is the GST Rules, Negative List and clarity on the rates.
- GST would be levied on ‘supply’ of goods and services and hence the present prevalent concepts of levy of excise on manufacture, VAT/CST on sales, entry tax on entry of goods in local area would no longer be relevant. The ambit of ‘supply’ is quite wide and covers supply of goods and services without consideration from one taxable person to another.
- There would be dual GST i.e. both the Centre and the States would concurrently levy GST across the entire goods and services supply chain on a common base.
Centre would levy Central GST (CGST) and States would levy State GST (SGST) on every supply of goods and services within a State. Integrated GST (IGST) would be levied on all inter-state supplies by the Centre and then transferred to the Destination State. Unlike in the present scenario, IGST would have to be paid on all inter-state supplies, be it in the nature of a sale or stock transfer.
- 3. Present Central Taxes like Central Excise, Service Tax, CVD, SAD, CST and State Taxes like VAT, CST, Entry Tax, Luxury Tax would get subsumed under GST. Customs is outside GST and hence Basic Customs Duty would continue on imports.
- 4. GST is a destination based consumption tax, which essentially implies that the revenue will accrue to the State where the consumer resides. This is unlike the present origin based levy where the revenue accrues to the origin state from where the movement originates..
- 5 Seamless flow of credit would be there under GST whereby CGST would be allowed to be set-off against CGST and IGST, SGST against SGST and IGST and IGST against IGST, CGST and SGST in that order. However, CGST credit will not be allowed to be set-off against SGST and vice versa. Thus, under GST, the present cost of 2% CST on inter-state sale will not be there as IGST would be totally fungible in the Destination State.
However, credit fungibility is state-centric as credit accumulated in one State cannot be used against tax pay-outs in another State.
6 . Liability for payment of GST would arise at the time of supply of goods and service. In terms of model law, receipt of advance payments for supply of goods and/or services would be considered as ‘time of supply’ and tax liability would arise on such advance receipt. However, receipt of goods and services is one of the pre-conditions for allowing input tax credit under GST and hence, even if GST is paid on advance payments, credit for the same would be available only on receipt of goods and services.
7. Registration threshold has been presently kept at Rs. 10 Lakhs (Rs. 5 lakhs in case of North East States and Sikkim) in the draft model law. Existing registered assesses would be migrated into GST, first provisionally and then finally subject to furnishing of requite information. Assesses have the option to take business segment-wise registration.
8. Option of composition levy is also prescribed, if aggregate turnover of a tax payer is < Rs. 50 lakhs. Persons adopting composition levy would be neither entitled to charge GST from its customers nor to avail credit of input tax. However, composition levy is not allowable to assesses who affects inter-State supplies.
9. Under GST, every assessee would have to upload invoice level outward supply details for B2B transactions. Details of inward supplies and tax credit would be
auto-populated based on sales details uploaded by the vendor. Hence, a robust IT infrastructure at the end of both supplier and recipient is critical for hassle free tax credits and avoid denial of credits due to mismatch issues.
10. Provisions relating to payment of tax under reverse charge, tax deductions at source are expected to continue under GST regime for specified persons/transactions. Thus, additional compliances would continue on the part of recipients, so far as tax payments under reverse charge and deduction at source are concerned.