Goods and Services Tax

K SYMBIOSIS found OF MANAGEMENT STUDIES Goods & service gross Report submitted to Dr. Dhirendra Deshpande in demand outial fulfillment for the degree of Masters in Business Administration Symbiosis external University, Pune Abstract This breed is an attempt to say the impact of GST on Indian sparing. The report defines earthy revenue agreements revenue and take to be-Added revenue ( bathtub). It then looks at the Goods and Services revenue enhancement (GST) intention in India which has been adapted to suit the Indian receipts ecesis.The report ends with the app atomic number 18nt impact of GST on Indian economy and the limitations of the instruction execution of GST. ? Contents Introduction3 plebeian revenue appraise3 Types of trades taskation3 Sales evaluate income in India4 Value- Added Tax ( ad valorem levy)6 eventance of tub in India6 Advantages Of tubful6 Disadvantages of tubful7 Items covered chthonian vat7 Tax discount at a lower place Val ue Added Tax Act8 bathtub vs. Sales Tax8 Goods and Services Tax (GST)10 Introduction10 The Need for GST10 Benefits of GST11 How GST depart Work12 GST vs. bathing tub14 GST vs. SALES TAX15 Limitation of GST16 IntroductionThis report is an attempt to last-placeherstand the impact of GST on Indian economy. The report starts by defining Sales Tax and Value-Added Tax (VAT). It then looks at the Goods and Services Tax (GST) design in India which has been adapted to suit the Indian evaluateation brass. The report ends with the probable impact of GST on Indian economy. Sales Tax A sales appraise is a impose salaried to a governing carcass by a trafficker for the sales of accredited goods and service. Laws depart the seller to collect funds for the appraise from the consumer at the point of barter for.Laws may every(prenominal)ow sellers to itemiz ( province item by item) the levy separately from the bell of the goods or operate, or require it to be allow in in the hu rt (tax-inclusive). The tax measuring is familiarly calcu previous(a)d by applying a percentage rate to the n adeptxempt price of a sale. When a tax on goods or exploit is give to a governing body directly by a consumer, it is usually called a use tax. Often laws provide for the exemption of certain goods or go from sales and use tax. Types of sales tax ever remaindering(a) receipts taxes This tax has been criticized for its cascading or pyramiding effect, in which an item is taxed to a greater extent than than once as it craps its way from cropion to nett retail sale. scratch up taxes Applied to a narrow range of products, frequently(prenominal) as gun or alcohol, usually imposed on the producer or interlocutor rather than the retail seller. Use tax Imposed directly on the consumer of goods purchased without sales tax, generally items purchased from a vendor who is non under the legal power of the taxing authority (e. g. , a vendor in some other nominate).Use ta xes argon comm whole imposed by states with a sales tax, scarcely atomic number 18 usually only enforced for massive items such as automobiles and boats. Securities derangement excise tax on the trade of securities. Value added taxes In which tax is kickingd on all sales, thus avoiding the need for a dust of resale certificates. Tax cascading is avoided by applying the tax only to the difference ( note value added) mingled with the price paid by the first purchaser and the price paid by from each angiotensin converting enzyme subsequent purchaser of the same item. Fair Tax A proposed federal sales tax, intended to replace the U. S. ederal income tax. Turnover tax Similar to a sales tax, but utilise to intermediate and by chance working slap-up goods as an indirect tax. Sales tax in India key Sales tax is generally payable on the sale of all goods by a school principal in the course of inter-state Trade or commerce or, outside a State or, in the course of second into o r, export from India. According to S3, a sale or purchase shall be deemed to take place in the course of interstate trade or commerce in the following studys 1. When the sale or purchase make the attempt of goods from angiotensin converting enzyme State to another 2.When the sale is affected by a transfer of documents of title to the goods during their causal agency from one State to another. Where the goods atomic number 18 delivered to a carrier or other bailee for transmission, the app bent movement of the goods for the purpose of article (b) above, is deemed to start at the eon of such delivery and terminate at the time when delivery is interpreted from such carrier or bailee. Also, when the movement of goods starts and terminates in the same State, it shall not be deemed to be a movement of goods from one State to another.To make a sale as one in the course of interstate trade, there essential be an promise to transport the goods outside the state. The obligation may be of the seller or the buyer. It may arise by causation of statute or befuddle amongst the parties or from mutual understanding or agreement amid them or, even from the nature of the transaction, which linked the sale to such transaction. in that location mustiness be a pinch between the seller and the buyer. According to the monetary value of the arrive, the goods must be moved from one state to another.If there is no contract, then there is no inter-state sale. There post be an interstate sale even if the buyer and the seller belong to the same state even if the goods move from one state to another as a result of a contract of sale or, the goods argon sold tour they argon in transit by transfer of documents. Sales tax is payable to the sales tax authority in the state from which the movement of goods commences. It is to be paid by every dealer on the sale of whatever goods effected by him in the course of inter-state trade or ommerce, notwithstanding that no liabilit y to tax on the sale of goods arises under the tax laws of the appropriate state. No state can levy sales tax on any sale or purchase where such sale or purchase takes place outside the state and in the course of import of goods into or export of goods outside India. Only the sevens can levy tax on inter-state sale or purchase of goods Not all despatches of goods from one state to another result in inter state sales rather the movement must be on account of a covenant or incident of the contract of sales.There atomic number 18 some instances wherein the goods are moved out of the selling state and yet they are not considered inter state sales - 1. Intra-state sales 2. Stock transfer from head sullenice to branch & vice versa 3. Import and Export sales or purchases 4. Sale through commission actor / on account sales 5. Delivery of Goods for executing works contract Exceptions in the sales tax include 1. Sales to resellers such as middlemans and retailers that have a valid state r esale certificate. 2.Sales to tax-exempt institutions such as schools or charities Value- Added Tax (VAT) VAT is a multi point levy where the tax paid on local purchases from the registered dealer can be situated off against the tax payable on the sale of goods, other than peculiar(a) goods. Example Consider the manufacture and sale of any item, which in this fictitious character we pull up stakes call a widget. In what follows, the term gross brim is used rather than profit. Profit is only what is left subsequently paying other costs, such as rent and personnel. Importance of VAT in IndiaIndia, particularly being a trading community, has always believed in accepting and adopting loopholes in any system administered by State or Centre. If a salutary-administered system comes in, it only closes options for traders and rail linemen to evade paying their taxes, but also makes sure that they are compelled to keep proper records of sales and purchases. on a lower floor the VAT s ystem, no exemptions are given and a tax is levied at every constitute of manufacture of a product. At every exhibit of value- growth, the tax that is levied on the remarks can be take awayed back from tax authorities.At a macro level, two issues make the introduction of VAT critical for India. 1. fabrication watchers believe that the VAT system, if enforced properly, give form part of the pecuniary consolidation strategy for the acres. It could, in fact, help parcel out issues kindred monetary deficit problem. Also the revenues estimated to be collected can actually mean lowering of fiscal deficit saddle for the government. International Monetary shop (IMF), in the semi-annual World Economic Outlook expressed its concern for Indias large fiscal deficit at 6 per cent of GDP. 2.Moreover any globally accepted tax administrative system would only help India immix better in the World Trade Organization regime Advantages Of VAT 1. Simplification Under the CST Act, there are 8 types of tax rates- 1%, 2%, 4%, 8%, 10%, 12%, 20% and 25%. However, under the present VAT system, there are only 2 types of taxes 4% on declared goods and 10-12% on RNR. This will eliminate any disputes that relate to rates of tax and classification of goods as this is the to the highest degree usual cause of litigation. It also helps to determine the relevant deliver of the tax.This is necessary as the CST Act stipulates that the tax levies at the first pegleg or the last stage differ. Consequently, the question of which stage of tax it falls under becomes another reason for litigation. Under the VAT system, tax is levied at each stage of the goods of sale or purchase. 2. Transparency The tax that is levied at the first stage on the goods or sale or purchase is not transparent. This is because the metre of tax, which the goods have suffered, is not kn have got at the subsequent stage. In the VAT system, the amount of tax is known at each and every stage of goods of sale or purchase. . Fair and Equitable VAT introduces the uniform tax rates across the state so that unfair advantages cannot be taken magical spell levying the tax. 4. Procedure of simplification Procedures, relating to filing of returns, wages of tax, furnishing declaration and opinion are simplified under the VAT system so as to minimize any interface between the tax payer and the tax collector. 5. Minimize the Discretion The VAT system proposes to minimize the discretion with the assessing incumbent so that every person is treated a same(p).For example, there would be no discretion involved in the imposition of penalty, late filing of returns, non-filing of returns, late payment of tax or non-payment of tax or in plate of tax evasion. Such system would be free from all these torment 6. Computerization The VAT proposes computerization which would focus on the tax evaders by generating Exception Report. In a large number of sheaths, no impact or scrutiny of returns would b e required as it would free the tax compliant dealers from all the harassment which is so much a part of assessment.The management information system, which would form a part of integral computerization, would make the tax department more efficient and responsive. Disadvantages of VAT 1. VAT is regressive 2. VAT is difficult to operate from position of both administration and bloodline 3. VAT is pompousnessary 4. VAT favors capital intensive firms Items covered under VAT 1. All business transactions that are carried on in spite of appearance a State by individuals/partnerships/ companies and so forth are covered under VAT. 2. More than 550 items are covered under the new Indian VAT regime out of which 46 natural unprocessed local products will be exempt from VAT 3.Nearly 270 items including drugs and medicines, all industrial and agricultural infixs, capital goods as well as declared goods attract 4 % VAT in India. 4. The remaining items attract 12. 5 % VAT. Precious metals suc h as gold and bullion will be taxed at 1%. 5. natural gas and diesel are kept out of the VAT regime in India. Tax implication under Value Added Tax Act SellerBuyerSelling value (Excluding Tax)Tax footstepInvoice value (InclTax)Tax PayableTax CreditNet TaxOutflow AB1004% CST104404. 00 BC11412. 5% VAT128. 2514. 250*14. 25 CD12412. 5% VAT139. 5015. 5014. 251. 25 DConsumer13412. % VAT150. 7516. 7515. 501. 25 number to Govt. VAT CST16. 75 4. 00 VAT vs. Sales Tax VAT is a form of indirect tax which is imposed on products or operate at different stages of manufacturing, where as Sales Tax is levied at the time of the purchase of the products or go. VAT is levied on both the producer and consumer date a sales tax is levied on only the end consumer. VAT involves tricky accounting while sales tax involves simpler accounting. VAT is employ at the various stages of production while sales tax is applied on the total value of the purchase. VAT efficiently avoids evasion of taxes while a s ales tax is unable to deal with this. In VAT the method follow is Input Tax Credit while Sales tax, liability of a dealer for a particular period is indomitable using the multiplication method. Goods and Services Tax (GST) Introduction Goods and Service Tax is a tax on goods and operate, which is leviable at each point of sale or provision of service, in which at the time of sale of goods or providing the function the seller or service provider can claim the input acknowledgment of tax which he has paid while buy the goods or procuring the service. GST is the rate of tax remains the same but as per the necessity of the nation some goods or services can be declared as exempted or Zero rated. A system Exports are zero rated and all the taxes paid while purchasing and manufacturing the goods including the taxes paid on warm material and services are returned to the exporter to make the exports competitive. The sellers or service providers collect the tax from their customer, who may or may not be the ultimate customer, and before depositing the same to the exchequer, they deduct the tax they have already paid.The Need for GST Avoid cascading effect of taxation A main reason of the introduction of GST is to avoid cascading effect of taxes in India. For example manufacturing of a product attract CENVAT (Central Value Added Tax) is a component of the tax structure diligent by galore(postnominal) countries in the western section of Europe. CENVAT is derived from a tax system that is generally referred to as VAT. The manufacturer pays CENVAT on goods produced. According VAT rules, the sales tax is payable on the aggregate selling price which include CENVAT. Here there is no lay out off benefits available. famine of Existing VAT Indirect taxes like high life tax, entertainment tax, are yet to be include in the VAT. These taxes are still breathing and payable. Shortfall of Existing CENVAT Several taxes like additional customs duty, sur peaks not included un der CENVAT. Input tax and service tax pot off is out of reach to the manufacturer and dealers. Benefits of GST GST provide comprehensive and wider reportage of input source setoff, you can use service tax credit for the payment of tax on sales of goods. CST will be removed and need not pay.At present there is no input tax credit available for CST. Many indirect taxes in state and central level submit by GST, you need to pay single GST instead of all. Uniformity of tax rates across the states. Ensure better conformation due to aggregate tax rate trim downs. By reducing the tax burden the competitiveness of Indian products in international market is evaluate to increase and there by development of the nation. Price of goods is expected to be reduced in the long run as the benefit of little tax burden would be passed on to the customer. overall tax form cost will reduce for government and can concentrate on GST. How GST Will Work The dealers registered under GST (Manufacture rs, Wholesalers and retailers and service providers) charge GST on the price of goods and services from their customers and claim credits for the GST included in the price of their own purchases of goods and services used by them. While GST is paid at each step in the yield chain of goods and services, the paying dealers dont actually put forward the burden of the tax because GST is an indirect tax and ultimate burden of the GST has to be taken by the last customer.This is because they include GST in the price of the goods and services they sell and can claim credits for the nearly GST included in the price of goods and services they buy. The cost of GST is borne by the utmost consumer, who cant claim GST credits, i. e. input credit of the tax paid. How GST Will Work The dealers registered under GST (Manufacturers, Wholesalers and retailers and service providers) charge GST on the price of goods and services from their customers and claim credits for the GST included in the pric e of their own purchases of goods and services used by them.While GST is paid at each step in the bring home the bacon chain of goods and services, the paying dealers dont actually bear the burden of the tax because GST is an indirect tax and ultimate burden of the GST has to be taken by the last customer. This is because they include GST in the price of the goods and services they sell and can claim credits for the most GST included in the price of goods and services they buy. The cost of GST is borne by the final consumer, who cant claim GST credits, i. e. input credit of the tax paid. WorkingThe illustration portrayn below indicates, in terms of a hypothetical example with a manufacturer, one wholesaler and one retailer, how GST will work. Let us suppose that GST rate is 10%, with the manufacturer making value addition of Rs. 30 on his purchases expenditure Rs. 100 of input of goods and services used in the manufacturing process. The manufacturer will then pay net GST of Rs. 3 subsequently setting-off Rs. 10 as GST paid on his inputs (i. e. Input Tax Credit) from gross GST of Rs. 13. The manufacturer sells the goods to the wholesaler. When the wholesaler sells the same goods after making value addition of (say), Rs. 0, he pays net GST of only Rs. 2, after setting-off of Input Tax Credit of Rs. 13 from the gross GST of Rs. 15 to the manufacturer. Similarly, when a retailer sells the same goods after a value addition of (say) Rs. 10, he pays net GST of only Re. 1, after setting-off Rs. 15 from his gross GST of Rs. 16 paid to wholesaler. Thus, the manufacturer, wholesaler and retailer have to pay only Rs. 6 (= Rs. 3+Rs. 2+Re. 1) as GST on the value addition along the entire value chain from the producer to the retailer, after setting-off GST paid at the earlier stages.The overall burden of GST on the goods is thus much less. This is shown in the table below. The same illustration will hold in the case of final service provider as well. Stage of hand over chain Purchase value of Input Value addition Value at which supply of goods and services made to next stage Rate of GST GST on output Input Tax credit Net GST= GST on output + Input tax credit Manufacturer 100 30 one hundred thirty 10% 13 10 13-10 = 3 Wholesaler 130 20 150 10% 15 13 15-13 = 2 retail merchant 150 10 160 10% 16 15 16-15 = 1 The GST can be divided into following sections to understand it better 1.Charging Tax The dealers registered under GST (Manufacturers, Wholesalers and Retailers and Service Providers) are required to charge GST at the stipulate rate of tax on goods and services that they supply to customers. The GST payable is included in the price paid by the recipient of the goods and services. The supplier must deposit this amount of GST with the Government. 2. Getting Credit of GST If the recipient of goods or services is a registered dealer (Manufacturers, Wholesalers and Retailers and Service Providers), he will normally be able to claim a credit for the a mount of GST he has paid, provided he holds a proper tax business relationship.This input tax credit is set off against any GST (Out Put), which the dealer charges on goods and services, which he supplies, to his customers. 3. Ultimate slant of Tax on Last Customer The net effect is that dealers charge GST but do not keep it, and pay GST but get a credit for it. This means that they act essentially as store agents for the Government. The ultimate burden of the tax falls on the last and final consumer of the goods and services, as this person gets no credit for the GST paid by him to his sellers or service providers. 4. Registration Dealers will have to register for GST.These dealers will include the Suppliers, Manufacturers, Service Providers, Wholesalers and Retailers. If a dealer is not Registered, he normally cannot charge GST and cannot claim credit for the GST he pays and however cannot issue a tax business relationship. 5. Tax Period The tax period will have to be decided by the respective law and normally it is monthly and (or) quarterly. On a particular tax period, this is applicable to the dealer concerned the dealer has to deposit the tax if his output credit is more. Than the input credit after considering the opening balance, if any, of the input credit. . Refunds If for a tax period the input credit of a dealer is more than the output credit then he is eligible for refund subject to the provisions of law applicable in this respect. The excess may be carried forward to next period or may be refunded immediately depending upon the provision of law. 7. Exempted Goods and Services Certain goods and services may be declared as exempted goods and services and in that case the input credit cannot be claimed on the GST paid for purchasing the raw material in this respect or GST paid on services used for providing such goods and services. 8.Zero Rated Goods and Services Generally, export of goods and services are zero-rated and in that case the GST pa id by the exporters of these goods and services is refunded. This is the elemental difference between Zero rated goods and services and exempted goods and services. 9. Tax Invoice Tax invoice is the basic and important document in the GST and a dealer registered under GST can issue a tax invoice and on the basis of this invoice the credit (Input) can be claimed. Normally a tax invoice must bear the name of supplying dealer, his tax realisation nos. , address and tax invoice nos. oupled with the name and address of the purchasing dealer, his tax identification nos. , address and description of goods sold or service provided. Impact of GST on Economy International Experiences Most countries have adopted VAT system and GST is considered similar to a VAT system. It is possible that some economies that have adopted VAT system are actually a GST as well. So we really do not know the broad experiences of most economies and worry to countries which call their tax systems as GST based. G ST system has been adopted in a few economies Canada, Australia, New Zealand and Singapore.Hong Kong proposed to introduce it but had to abandon it amidst stiff opposition. Over a long term there are improvements across the macroeconomic variables but there were short-term glitches. Inflation did seem to rise in the years of introduction but was mainly blamed on the administration for the same. The impact on revenue and current account has been very formidable with sharp gains seen in all the three economies. In Australia there was a more dramatic impact of GST on the economy. Before GSTs writ of execution, consumers rush along to purchase goods that they perceived would be substantially more high-priced post-GST.After the tax, consumer drug addiction and economic growth declined shrewdly initially. In Q1 2000, Australian economy put down banish economic growth for the first time in more than 10 years. Consumption and growth soon returned to normal. There was some negative impact on price of real estate as well but the market rose and property prices and demand increased sharply in 2002-04. GST increased the real output of the Canadian economy by 1. 4% of GDP, principally through an increase in the productivity of capital and total factor productivity. The sectors like transportation, utilities, services and agriculture experienced material gains.Following are the impacts of GST on Australia, New Zealand and Canada AUSTRALIANEW ZEALANDCANADA Price ChangesShort run one off effectShort run spike in prices, no longer run increaseShort run spike in prices, no longer run increase, price regulatory body Criticize Economic GrowthIntroduced during sustained economic growth periodIntroduced at the end of recession, subsequent upswingIntroduced in midst of major recession, criticized as compound problems Revenue GrowthRevenue exceeded expectationsRevenue exceeded ExpectationsRevenue exceeded Expectations Current AccountSlight improvement ince introductionRap id immediate improvement, longer term stabilizationDramatic benefit since introduction of GST, NAFTA GST vs. VAT Limitations in Centre VAT system There is CENVAT but several taxes are still out of the ambit like surcharges, additional customs duties etc. In some goods we get input tax and not in others, making the tax filing system complex and cumbersome. Limitations in State VAT system The States also have VAT but again story is the same. Many taxes like luxury taxes, entertainment tax etc, are not included. There is no input tax credit in case of CENVAT paid on certain items. Interstate Sales Tax (CST) Though it is an important source of revenue for states it is seen as very burdensome by businesses. The companies make goods in one state but on distribution inside the country, end up paying taxes in each state. They are supplying goods within the country and should just be taxed at one place. Inclusion of Services in VAT system Production of goods is because of both physical prod uction and services. tho Services are taxed only by Centre and that too is through with(p) selectively. The Services need to be taxed at State level and combine with the Goods VAT system as shown in the example above. International old-hat GST is becoming an international standard and it is important India also has one. There are many factors before international companies while choosing a country for its business and taxation system is one very important factor. With other countries having GST and India not having one, the companies are in all probability to opt for former ahead of India for locating their businesses. in any case Indian companies may also prefer to increasingly set their bases in other countries where tax system is more efficient. GST vs. Sales Tax hotshot versus multiple stageUnlike the existing sales tax, GST is generally charged on the phthisis of goods and services at every stage of the supply chain, with the tax burden ultimately borne by the end consum er. This multiple tax levels feature of GST is the ingrained change from the present single-stage sales tax levied at only one stage of the supply chain. Goods and services subject to tax GST operates on a negative concept all goods and services are subject to GST unless specifically exempted. For sales tax, the same concept applies where all goods are taxable unless specifically exempted.It is anticipated that the number of exemptions under the present sales tax regime would be significantly reduced. Tax payment and accounting periods Time of supply is an important feature under the GST regime (method or system of government) as it determines when one should account for GST in the GST returns. The approach used by many countries when adopting GST is that a supply is considered to have taken place at the early by three events that the time is invoice issue, the time any payment is received by the supplier and the time a taxable supply is made.The GST rules differ from the existin g sales tax structure where sales tax becomes due and payable when there is a sale or organization otherwise than by sale. Group registration Group registration is included as a facility that allows companies to file consolidated GST returns. The objective is to reduce their GST administration costs where supplies made within a group would be disregarded for GST purposes. The facility could potentially result in better change flow management for the group if goods and services are regularly supplied between group companies.The existing sales tax and service tax structures do not allow consolidated tax filings. Limitation of GST There are two main limitations of GST Inflation Most of the international case studies show an inflation spurt in initial months of GST implementation. In Australias case we saw spurt in prices of goods which Australian consumers Thought would become expensive after the GST. Much of blame for inflation is accorded to the various regulatory bodies and quest ion over the new tax regime.The inflation situation stabilizes as implementation gains pace and is understood by consumers and producers. In Indias case inflation could be critical as unlike developed countries profiled above, India has far more inefficiencies in supply chain in local markets. The Indian GST neaten is far larger in scale compared to above economies. Indian economy is already plagued with persistent high inflation and this new reform could further test inflation further. Tax Revenue Shortfall RBI in the State Finances Report (2010-11) said the revenue implications of GST are likely to vary across states.The Centre and the States are still discussing various aspects of GST like taxation rates, revenue sharing model between Centre and States etc. As there is still uncertainty over the final intent of GST, it is difficult to estimate the impact of GST on state finances. Other issues are enhancing the administrative capacity of states and building IT (Information techn ology) infrastructure to capture the full benefits of GST. The report points that VAT led to improvement in tax revenue for most states.