Gst (goods & service

tax

Submitted by

Nikita Sawant 44

Aditya Kadam 22
 Acknowledgement

We are thankful to Prof. Anju Sawlani for giving us an opportunity to study about the GST
(Goods & Service Tax) its implementation in India and their impact on all over economy. This
has been very helpful for us in understanding the importance of GST and how its beneficial to
common man. This project would not have been successful without their continuous guidance
and theoretical inputs.

Aditya Kadam 22

Nikita Sawant 44

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 Contents

Sr no. Topic name Page No. Remarks

1 Objectives of Report 3

2 Summary of GST 4

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 Objective of the Report

The objective of the report is to study the following points in GST:

To study the impact of Crisis on the overall economy. To eliminate the cascading impact
of taxes on production and distribution cost of goods and services.

To identify the possible alternative models for introduction of GST in India

To examine their various characteristics and assess their suitability in Indias economy.

To identify the Central Taxes and State Taxes which possess properties to be
appropriately subsumed under GST

To suggest a model for the base and rate structure of GST

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 INTRODUCTION

What is Tax?

The word tax is derived from the Latin wordtaxare meaning to estimate. A tax is not avoluntary
payment or donation, but an enforced contribution, exacted pursuant to legislative authority" and
is any contribution imposed by government whether under the name of toll, tribute, impost, duty,
custom, excise, subsidy, aid, supply, or other name.

The legal definition and the economic definition of taxes differ in that economists do not regard
many transfers to governments as taxes. For example, some transfers to the public sector are
comparable to prices. Examples include tuition at public universities and fees for utilities
provided by local governments. Governments also obtain resources by "creating" money and
coins (for example, by printing bills and by minting coins), through voluntary gifts (for example,
contributions to public universities and museums), by imposing penalties (such as traffic fines),
by borrowing, and by confiscating wealth. From the view of economists, a tax is a non-penal, yet
compulsory transfer of resources from the private to the public sector levied on a basis of
predetermined criteria and without reference to specific benefit received.

In modern taxation systems, governments levy taxes in money; but in-kind and corve taxation
are characteristic of traditional or pre-capitalist states and their functional equivalents. The
method of taxation and the government expenditure of taxes raised is often highly debated
in politics and economics. Tax collection is performed by a government agency such as
the Canada Revenue Agency, the Internal Revenue Service (IRS) in the United States, or Her
Majesty's Revenue and Customs (HMRC) in the United Kingdom. When taxes are not fully paid,
the state may impose civil penalties (such as fines or forfeiture) or criminal penalties (such
as incarceration) on the non-paying entity or individual.

Types

Goods and services

Value added

A value added tax (VAT), also known as Goods and Services Tax (G.S.T), Single Business Tax,
or Turnover Tax in some countries, applies the equivalent of a sales tax to every operation that
creates value. To give an example, sheet steel is imported by a machine manufacturer. That
manufacturer will pay the VAT on the purchase price, remitting that amount to the government.
The manufacturer will then transform the steel into a machine, selling the machine for a higher
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price to a wholesale distributor. The manufacturer will collect the VAT on the higher price, but
will remit to the government only the excess related to the "value added" (the price over the cost
of the sheet steel). The wholesale distributor will then continue the process, charging the retail
distributor the VAT on the entire price to the retailer, but remitting only the amount related to the
distribution mark-up to the government. The last VAT amount is paid by the eventual retail
customer who cannot recover any of the previously paid VAT. For a VAT and sales tax of
identical rates, the total tax paid is the same, but it is paid at differing points in the process.

VAT is usually administrated by requiring the company to complete a VAT return, giving details
of VAT it has been charged (referred to as input tax) and VAT it has charged to others (referred to
as output tax). The difference between output tax and input tax is payable to the Local Tax
Authority.

Many tax authorities have introduced automated VAT which has

increased accountability and auditability, by utilizing computer-systems, thereby also enabling
anti-cybercrime offices as well.

Sales

Sales taxes are levied when a commodity is sold to its final consumer. Retail organizations
contend that such taxes discourage retail sales. The question of whether they are generally
progressive or regressive is a subject of much current debate. People with higher incomes spend
a lower proportion of them, so a flat-rate sales tax will tend to be regressive. It is therefore
common to exempt food, utilities and other necessities from sales taxes, since poor people spend
a higher proportion of their incomes on these commodities, so such exemptions make the tax
more progressive. This is the classic "You pay for what you spend" tax, as only those who spend
money on non-exempt (i.e. luxury) items pay the tax.

A small number of U.S. states rely entirely on sales taxes for state revenue, as those states do not
levy a state income tax. Such states tend to have a moderate to large amount of tourism or inter-
state travel that occurs within their borders, allowing the state to benefit from taxes from people
the state would otherwise not tax. In this way, the state is able to reduce the tax burden on its
citizens. The U.S. states that do not levy a state income tax are Alaska, Tennessee, Florida,
Nevada, South Dakota, Texas, Washington state, and Wyoming. Additionally, New Hampshire
and Tennessee levy state income taxes only on dividends and interest income. Of the above
states, only Alaska and New Hampshire do not levy a state sales tax. Additional information can
be obtained at the Federation of Tax Administrators website.

In the United States, there is a growing movement for the replacement of all federal payroll and
income taxes (both corporate and personal) with a national retail sales tax and monthly tax rebate
to households of citizens and legal resident aliens. The tax proposal is named Fair Tax. In

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Canada, the federal sales tax is called the Goods and Services tax (GST) and now stands at 5%.
The provinces of British Columbia, Saskatchewan, Manitoba, and Prince Edward Island also
have a provincial sales tax [PST]. The provinces of Nova Scotia, New Brunswick,
Newfoundland & Labrador, and Ontario have harmonized their provincial sales taxes with the
GSTHarmonized Sales Tax [HST], and thus is a full VAT. The province of Quebec collects the
Quebec Sales Tax [QST] which is based on the GST with certain differences. Most businesses
can claim back the GST, HST and QST they pay, and so effectively it is the final consumer who
pays the tax.

Summary of GST

The Goods and Services Tax Bill or GST Bill, officially known as The Constitution (One
Hundred and twenty second Amendment) Bill, 2014, proposes a national Value added Tax to
be implemented in India from 1 April 2017.

The introduction of Goods and Services Tax (GST) would be a significant step in the reform of
indirect taxation in India. Amalgamating several Central and State taxes into a single tax would
mitigate cascading or double taxation, facilitating a common national market. The simplicity of
the tax should lead to easier administration and enforcement. From the consumer point of view,
the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which
is currently estimated at 25%-30%, free movement of goods from one state to another without
stopping at state borders for hours for payment of state tax or entry tax and reduction in
paperwork to a large extent.

What changes there would be if India launches GST- The tax rate under GST may be nominal
or zero rated for the time being. It has been proposed to insulate the revenues of the States from
the impact of GST, with the expectation that in due course, GST will be levied on petroleum and
petroleum products. The central government has assured states of compensation for any revenue
losses incurred by them from the date of introduction of GST for a period of five years.

As India is a federal republic GST would be implemented concurrently by the central

government and by state governments
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 INTRODUCTION OF GST:-

G Goods

S Services

T Tax

Goods and Service Tax (GST) is a comprehensive tax levy on manufacture, sale and
consumption of goods and service at a national level under which no distinction is made between
goods and services for levying of tax. It will mostly substitute all indirect taxes levied on goods
and services by the Central and State governments in India.

GST is a tax on goods and services under which every person is liable to pay tax on his output
and is entitled to get input tax credit (ITC) on the tax paid on its inputs(therefore a tax on value
addition only) and ultimately the final consumer shall bear the tax.

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Need For GST

Introduction of a GST to replace the existing multiple tax structures of Centre and State
taxes is not only desirable but imperative in the emerging economic environment.
Increasingly, services are used or consumed in production and distribution of goods and
vice versa. Separate taxation of goods and services often requires splitting of transaction
values into value of goods and services for taxation, which leads to greater complexities,
administration and compliances costs. Integration of various taxes into a GST system
would make it possible to give full credit for inputs taxes collected. GST, being a
destination-based consumption tax based on VAT principle, would also greatly help in
removing economic distortions and will help in development of a common national
market.

Indirect taxes included under GST

The following indirect taxes from state and central level is going to integrated with GST

STATE TAXES
1. VAT/Sales tax
2. Entertainment Tax (unless it is levied by local bodies)
3. Luxury tax
4. Taxes on lottery, betting and gambling.
5. State cesses and surcharges in so far as they relate to supply of goods and
services.
6. Entry tax not on in lieu of octroi.
7. Purchase tax (This is not sure still under discussion)

CENTRAL TAXES
1. Central Excise Duty.
2. Additional Excise Duty.
3. The Excise Duty levied under the medical and Toiletries Preparation Act
4. Service Tax.
5. Additional Customs Duty, commonly known as countervailing Duty (CVD)
6. Special Additional duty of customs- (SAD)
7. Surcharges
8. Cesses The above taxes dissolve under GST; instead only CGST & SGST
exists.

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Taxes that may or may not be subsumed due to no consensus between the Central and State
Governments:

Stamp Duty

Vehicle Tax

Electricity Duty

Other Entry taxes and Octroi

Entertainment Tax (levied by local bodies)

Basic customs duty and safeguard duties on import of goods into India

Applicability of CGST and SGST

The applicability of taxes is as usual there would be a prescribed limit of annual turnover, also
some goods and services are exempted under GST. Threshold for annual turnover for goods and
services would be 10 lakh for SGST and threshold of CGST for goods may be 1.5 crore and
servicewould have a separate threshold that too will be appropriately high. It is assumed that
aggregatetotal of CGST & SGST would be 20%.

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History of GST

An empowered committee was set up by Atal Bihari Vajpayee government in 2000 to streamline
The GST model to be adopted and to develop the required backend infrastructure that would be
needed for its implementation.

In his budget speech on 28 February 2006, P. Chidambaram, the then Finance Minister,
announced the target date for implementation of GST to be 1 April 2010 and formed another
empowered committee of State Finance Ministers to design the roadmap. The committee
submitted its report to the government in April 2008 and released its First Discussion Paper on
GST in India in 2009.

The Constitution (122nd Amendment) Bill, 2014 was introduced in the Lok Sabha by Finance
Minister Arun Jaitley on 19 December 2014, and passed by the House on 6 May 2015. In
the Rajya Sabha, the bill was referred to a Select Committee on 14 May 2015. The Select
Committee of the Rajya Sabha submitted its report on the bill on 22 July 2015. The bill was
passed by the Rajya Sabha on 3 August 2016, and the amended bill was passed by the Lok Sabha
on 8 August 2016.

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The bill, after ratification by the States, received assent from President Pranab Mukherjee on 8
September 2016, and was notified inThe Gazette of India on the same date.

Dual GST:-

A dual GST module for the country has been proposed by the EC. This dual GST model has been
accepted by centre. Under this model GST have two components viz. the Central GST to be
levied and collected by the Centre and the State GST to be levied and collected by the respective
States. Central Excise duty, additional excise duty, Service Tax, and additional duty of customs
(equivalent to excise), State VAT, entertainment tax, taxes on lotteries, betting and gambling and
entry tax (not levied by local bodies) would be subsumed within GST. Other taxes which will be
subsumed with GST are Octroi, entry tax and luxury tax thus making it a single indirect tax in
India.[44]

In order to take the GST related work further, a Joint Working Group consisting of officers from
Central as well as State Government was constituted. This was further trifurcated into three Sub-
Working Groups to work separately on draft legislations required for GST, process/forms to be
followed in GST regime and IT infrastructure development needed for smooth functioning of
proposed GST. In addition, an Empowered Group for development of IT Systems required for
Goods and Services Tax regime has been set up under the chairmanship of Dr. Nandan
Nilekani.Amendment

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Salient features of GST

The Central GST and the State GST would be applicable to all transactions of goods and
services made for a consideration except the exempted goods and services, goods which are
outside the purview of GST and the transactions which are below the prescribed threshold
limits.

The Central GST and State GST are to be paid to the accounts of the Centre and the
States separately. It would have to be ensured that account-heads for all services and goods
would have indication whether it relates to Central GST or State GST (with identification of
the State to whom the tax is to be credited).

Since the Central GST and State GST are to be treated separately, taxes paid against the
State GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and
could be utilized only against the payment of Central GST.

Cross utilization of ITC between the Central GST and the State GST would not be
allowed except in the case of inter-State supply of goods and services under the IGST model
which is explained later.
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 Ideally, the problem related to credit accumulation on account of refund of GST should
be avoided by both the Centre and the States except in the cases such as exports, purchase of
capital goods, input tax at higher rate than output tax etc. where, again refund/adjustment
should be completed in a time bound manner.

To the extent feasible, uniform procedure for collection of both Central GST and State
GST would be prescribed in the respective legislation for Central GST and State GST.

The administration of the Central GST to the Centre and for State GST to the States
would be given. This would imply that the Center and the States would have concurrent
jurisdiction for the entire value chain and for all taxpayers on the basis of thresholds for
goods and services prescribed for the States and the Centre.

The taxpayer would need to submit periodical returns, in common format as far as
possible, to both the Central GST authority and to the concerned State GST authorities.

Each taxpayer would be allotted a PAN-linked taxpayer identification number with a total
of 13/15 digits. This would bring the GST PAN-linked system in line with the prevailing
PAN-based system for Income tax, facilitating data exchange and taxpayer compliance.

Keeping in mind the need of tax payers convenience, functions such as assessment,
enforcement, scrutiny and audit would be undertaken by the authority which is collecting the
tax, with information sharing between the Centre and the States.

All assessees/dealers who are already registered under existing central excise/service tax/
vat laws need to obtain fresh registration. The existing registration will be converted into
GST Registration.

A Special Purpose Vehicle called the GSTN has been set up to cater to the needs of GST.
The GSTN shall provide a shared IT infrastructure and services to Central and State
Governments, tax payers and other stakeholders for implementation of GST.

VAT vs GST

Same concept of ITC as VAT

ITC for service and goods are combind
ITC on centre GST and state GST is not interchangeable
National Excise and state VAT shall be integrate
No commodity service tax
No Tax Incentive in different types of interstate transaction
Further rduction of cascading due to aboliation of CST, intergration of cenrqal excise

duty, service and state tax

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IMPACT ON ECONOMY

The study concludes that implementation of a comprehensive GST in India will lead to efficient
allocation of factors of production thus leading to gain in GDP and exports. This would translate
into enhanced economic welfare and returns to the factors of production, i.e. land, labourand
capital. The gains in real returns to land range between 0.42 and 0.82 per cent. Wage rate gains
vary between 0.68 and 1.33 per cent. The real returns to capital would gain in the range of 0.37
and 0.74 percent. Further, the study also shows that implementation of GST across goods and
services is expected, ceteris paribus, to provide gains to Indias GDP somewhere within a
range of 0.9 to 1.7 per cent. The corresponding change in absolute values of GDP over 2008-09
is expected to be between Rs. 42,789 croreandRs. 83,899 crore, respectively.
The study concludes that implementation of a comprehensive GST in India will lead to efficient
allocation of factors of production thus leading to gain in GDP and exports. This would translate
into enhanced economic welfare and returns to the factors of production, i.e. land, labourand
capital. The gains in real returns to land range between 0.42 and 0.82 per cent. Wage rate gains
vary between 0.68 and 1.33 per cent. The real returns to capital would gain in the range of 0.37
and 0.74 percent. Further, the study also shows that implementation of GST across goods and
services is expected, ceteris paribus, to provide gains to Indias GDP somewhere within a
range of 0.9 to 1.7 per cent. The corresponding change in absolute values of GDP over 2008-09
is expected to be between Rs. 42,789 croreandRs. 83,899 crore, respectively.
FOOD INDUSTRY
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The application of GST to food items will have a significant impact on those who are living
undersubsistence level. But at the same time, a complete exemption for food items would
drastically shrink the tax base. Food includes grains and cereals, meat, fish and poultry, milk and
dairy products, fruits and vegetables, candy and confectionary, snacks, prepared meals for home
consumption, restaurant meals and beverages. Even if the food is within the scope of GST, such
sales would largely remain exempt dueto small business registration threshold. Given the
exemption of food from CENVAT and 4% VAT on food item, the GST under a single rate would
lead to a doubling of tax burden on food.

HOUSING AND CONSTRUCTION INDUSTRY

In India, construction and Housing sector need to be included in the GST tax base because
construction sector is a significant contributor tothe national economy.

FMCG Sector

Despite of the economic slowdown, India's Fast Moving Consumer Goods (FMCG) has grown
consistently during the past three four years reaching to $25 billion at retail sales in
2008.Implementation of proposed GST and opening of Foreign Direct Investment (F.D.I.) are
expected to fuel the growth and raise industry's size to $95 Billion by 201835.

RAIL SECTOR

There have been suggestions for including the rail sector under the GST umbrella to bring about
significant tax gains and widen the tax net so as to keep overall GST rate low. This will have the
added benefit of ensuring that all inter state transportation of goods can be tracked through the
proposed Information technology (IT) network.

FINANCIAL SERVICES

In most of the countries GST is not charged on the financial services. Example, In New Zealand
most of the services covered except financial services as GST. Under the service tax, India has
followed the approach of bringing virtually all financial services within the ambit of tax where
consideration for them is in the form of an explicit fee. GST also include financial services on
the above grounds only.

INFORMATION TECHNOLOGY

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Information Technology enabled services To be in sync with the best International

practices, domestic supply of software should also attract G.S.T. on the basis of mode of
transaction. Hence if the software is transferred through electronic form, it should be considered
as Intellectual Property and regarded as a service. And if the software is transmitted on media or
any other tangible property, then it should be treated as goods and subject to G.S.T. 35According
to a FICCI Technopak Report. Implemtayion of GST will also help in uniform, simplified and
single point Taxation and thereby reduced prices.

IMPACT ON SMALL ENTERPRISES

There will be three categories of Small Enterprises in the GST regime.

Those below threshold need not register for the GST Those between the threshold and
composition turnovers will have the option to pay a turnover based tax or opt to join the GST
regime. Those above threshold limit will need to be within framework of GST Possible
downward changes in the threshold in some States consequent to the introduction of GST may
result in obligation being created for some dealers. In this case considerable assistance is desired.
In respect of Central GST, the position is slightly more complex. Small scale units manufacturing
specified goods are allowed exemptions of excise up to Rs. 1.5 Crores. These units may be
requiredto register for payment of GST, may see this as anadditional cost.

IMPACT ON INVESTMENT

Boost to international investment

Encouragement to domestic investment

Bringing down regional disparity

Rational logistic decisions

End to pitfalls of tax holidays

Less investment on inventory more on expand

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SECTORS CHANGES IMPACT
AFTER GST

Banks Service Tax : Negative

18% to 15%

Media 22% to 18% Positive

Telecom 15% to 18% Negative

Autp mobiles 27% to 18% Positive

Cement 27% to 18% Positive

Metal 18% to 18% No Major

Impact

Real estate 15% to 16% Negligible

Impact

Pharmaceutical 15% to 18% Negative

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 Conclusions

GST is the most logical steps towards the comprehensive indirect tax reform in our country since
independence. GST is leviable on all supply of goods and provision of services as well
combination thereof. All sectors of economy whether the industry, business including Govt.
departments and service sector shall have to bear impact of GST. All sections of economy viz.,
big,medium, small scale units, intermediaries,importers, exporters, traders, professionals
andconsumers shall be directly affected by GST... One of the biggest taxation reforms in India
the Goods and Service Tax (GST) -- is all set to integrate State economies and boost overall
growth. GST will create a single, unified Indian market to make the economy stronger. Experts
say that GST is likely to improve tax collections and Boost Indias economic development by
breaking tax barriers between States and integrating India through a uniform tax rate. Under
GST, the taxation burden will be divided equitably between manufacturing and services,through
a lower tax rate by increasing the tax base and minimizing exemptions.

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