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GST vs previous tax FOR BBA AND MBA STUDENTS PPT
- 1. GOODS AND SERVICES TAX (GST) IN INDIA
- 2. Concept of GST  GST is a tax on goods and services with comprehensive and continuous chain of setoff benefits from the Producer’s point and Service provider’s point up to the retailer level.  GST is expected be levied only at the destination point, and not at various points (from manufacturing to retail outlets). It is essentially a tax only on value addition at each stage and a supplier at each stage is permitted to setoff through a tax credit mechanism which would eliminate the burden of all cascading effects, including the burden of CENVAT and service tax.  Under GST structure, all different stages of production and distribution can be interpreted as a mere tax pass through and the tax essentially sticks on final consumption within the taxing jurisdiction.  Currently, a manufacturer needs to pay tax when a finished product moves out from the factory, and it is again taxed at the retail outlet when sold. The taxes are levied at the multiple stages such as CENVAT, Central sales tax, State Sales Tax, Octroi, etc. will be replaced by GST to be introduced at Central and State level. Continued…….
- 3. Concept of GST ï‚— All goods and services, barring a few exceptions, will be brought into the GST base. There will be no distinction between goods and services. ï‚— 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. ï‚— However, the basic features of law such as chargeability, definition of taxable event and taxable person, measure of levy including valuation provisions, basis of classification etc. would be uniform across these statutes as far as practicable. ï‚— The existing CST will be discontinued. Instead, a new statute known as IGST will come into place on the inter-state transfer of the Goods and Services. ï‚— By removing the cascading effect of taxes (CST, additional customs duty, surcharges, luxury Tax, Entertainment Tax, etc. ),CGST & SGST will be charged on same price .
- 4. When was GST Launched in India? ï‚— On 1st July 2017 at midnight, the President of India, Sir Pranab Mukherjee and Prime Minister Sir Narendra Modi launched GST all over India including Jammu & Kashmir. However, there have been many changes made to the rates of GST, the latest being on 18th January 2018. ï‚— In a short span of time, all the states approved their State GST (SGST) laws. Union territories with legislatures, i.e., Delhi and Puducherry, have adopted the SGST Act and the other 5 union territories without legislatures have adopted the UTGSTAct. ï‚— The idea of introducing GST was first proposed by the then Union Finance Minister, P. Chidambaram in his Budget for 2006-07.The discussion on GST took specific decision with the introduction of the Constitutional Bill (122nd Amendment), 2014.The Bill was passed by the Parliament on 8 August 2016.This was followed by the approval of the Bill by more than 15 states. On 12 April 2017, the Central Government enacted four GST bills: ï‚— Central GST (CGST) Bill ï‚— Integrated GST (IGST) Bill ï‚— UnionTerritory GST (UTGST) Bill ï‚— The GST (Compensation to States) Bill
- 5. Why was GST Introduced in India? In the Indian economy, the service sector contributes to over 55%. Separate taxation of goods and services is neither viable nor desirable. GST in India had been introduced to reduce the tax burden that’s on both companies and consumers. In the previous system, there were multiple taxes added at each stage of the supply chain, without taking credit for taxes paid at previous stages.As a result, the end cost of the product does not clearly show the actual cost of the product and how much tax was applied.The tax structure was complex. GST integrated most of the taxes into one single tax, where the consumers are benefited.This method provides InputTax Credit paid on the purchase of goods and services, which can be offset with the tax to be paid on the supply of goods and services.As a result, this reduces the overall cost, with the end customer paying less.
- 6. Existing Tax structure in India Tax Structure DirectTax IncomeTax WealthTax IndirectTax CentralTax Excise ServiceTax Custome StateTax VAT EntryTax, luxury tax, LotteryTax, etc.
- 7. Proposed Tax Structure in India Tax Structure DirectTax IncomeTax WealthTax IndirectTax = GST (Except customs) Intra- state CGST (Central) SGST (State) Inter State IGST (Central)
- 8. Subsuming of Existing Taxes •Central Excise •Additional duties of Custom (CVD) •ServiceTax •Surcharges and all cesses CGST •VAT/sales tax •EntertainmentTax •LuxuryTax •LotteryTax •EntryTax •PurchaseTax •Stamp Duty •Goods and passengerTax •Tax on vehicle •Electricity, banking, Real state SGST • CST IGST
- 9. Model of GST  SGST and CGST for intrastate transaction : In the GST system, both Central and State taxes will be collected at the point of sale. Both components (the Central and State GST) will be charged on the manufacturing cost. This will benefit individuals as prices are likely to come down. Lower prices will lead to more consumption, thereby helping companies.  IGST for Interstate transaction: ‘IGST Model’ will be in place for taxation of inter State transaction of Goods and Services. The scope of IGST Model is that center would levy IGST which would be CGST plus SGST on all inter State transactions of taxable goods and services with appropriate provision for consignment or stock transfer of goods and services.  The GST paid on the purchase of goods and services, to be paid on the supply of goods and services.  There should be no distinction between raw materials and capital goods in allowing input tax credit. The tax base should comprehensively extend over all goods and services up to final consumption point on value addition.
- 10. GST vs Previous Taxes ï‚— What isVAT? ï‚— VAT orValue AddedTax was one of the indirect taxes which has been subsumed by GST.Although the concept ofVAT was introduced in 2005, it was implemented in 2014 and applied to the sale of goods. Similarly, service tax applied to services. ï‚— Here are a few disadvantages ofVAT ï‚— Different states had their own version ofVAT law ï‚— Rate ofVAT was different in different states ï‚— Cascading effect of taxes was prominent under theVAT regime
- 11. ï‚— Applicability VAT is applicable only on the sale of goods while GST is applicable both on goods and services. ï‚— Taxable event A key difference betweenVAT and GST is that the taxable event in case ofVAT is the sale of goods. However, in case of GST it is the supply of goods or services. ï‚— Tax distribution between state and centre VAT laws and tax rates were different in each state and each of them kept the whole share of collected tax with themselves. However, under the GST regime, both SGST and CGST is collected from the supply of goods and services and later bifurcated by the central and state governments.
- 12. ï‚— Calculation of input credit In case of theVAT, the dealer has the right to deposit his net tax liability by deducting inputVAT on goods purchased from outputVAT on goods sold. However, as GST applies to goods as well as services provided, the GST portal system calculates the input credit which is used for payment of the next GST liability. ï‚— Input tax credit The credit of input tax cannot be claimed for services in case ofVAT as it is applicable only to goods. But, input tax credit can be claimed for both goods as well as services in case of GST as it applies to both. ï‚— Declaration System VAT used to have a declaration system (i.e. issuance of various forms for a particular pool of transactions) for interstate sales (Form C), BranchTransfer (Form F), Deemed Exports (Form H), SEZ sales (Form I), etc. Hence the VAT system was a bit complicated and paperwork driven. This concept of Declaration has been done away with under the GST regime.
- 13. ï‚— InputTax Credit Mismatch UnderVAT, the taxpayer was informed about the mismatches only at the time of assessment of that particular tax period which was resulting in the cash outflow for such mismatches or the follow-up with such vendors after almost 2-3 years after the transaction took place.This used to have very serious repercussions on the taxpayers, particularly if the amount was huge.This was in substance resulting in the irreversible credit loss to the taxpayer. Under GST, automated monthly reconciliation of transactions has been introduced which will make the taxpayers identify the differences immediately and take follow up and rectify the mismatches at that point itself.This will substantially reduce the credit loss. ï‚— Taxation on services VAT is not applicable to provided or sold services. Service tax was charged additionally @ 15%. GST rates for services depend on nature of service. It may be 12% and 18% and 28% depending on the sector. Most services come under 18% GST. ï‚— Return Filing Under theVAT regime, the due date to file a return was 20th of succeeding month. Under the GST regime, the due date to file a return for sales is 10th, the purchase is 15th, and payment is 20th of succeeding month.Those applying for composition scheme have to file a return only once every quarter.
- 14. ï‚— Compulsion forVAT number & GSTIN Obtaining registration underVAT was mandatory for businesses exceeding an annual turnover of Rs 5 lakh (5 lakh was for MaharashtraVAT, it differed from state to state). Registration under GST is mandatory for businesses exceeding an annual turnover of Rs 20 lakh. ï‚— Seamless flow of credit UnderVAT, excise charged used to become a cost for the dealer as the credit of the same was not available, which lead to double taxation. But under GST, there is a seamless flow of credit. ï‚— Online payment Online payment was not a compulsory thing underVAT, but GST makes it mandatory if the tax, penalty or interest etc. payable exceeds Rs 10,000.
- 15. ï‚— Mode of Operation While GST is a fully online technologically advanced tax regime, it was not the case underVAT. Many of the functions were not automated under theVAT which was compelling the taxpayers to do a lot of paperwork.
- 16. Impact of GST on Indian Economy ï‚— Increases competitiveness The retail price of the manufactured goods and services in India reveals that the total tax component is around 25-30% of the cost of the product.After implementation of GST, the prices have gone down, as the burden of paying taxes has been reduced to the final consumer of such goods and services.There is a scope to increase production, hence, competition increases. ï‚— SimpleTax Structure Calculation of taxes under GST is simpler. Instead of multiple taxation under different stages of supply chain, GST is a one single tax.This saves money and time. ï‚— Economic Union of India There is freedom of transportation of goods and services from one state to another after GST. Goods can be easily transported all over the country, which is a benefit to all businesses.This encourages increase in production and for businesses to focus on PAN-India operations.
- 17. ï‚— GreaterTax Revenues A simpler tax structure can bring about greater compliance, this increases the number of tax payers and in turn the tax revenues collected for the government. By simplifying structures, GST would encourage compliance, which is also expected to widen the tax base. ï‚— Increase in Exports There has been a fall in the cost of production in the domestic market after the introduction of GST, which is a positive influence to increase the competitiveness towards the international market. ï‚— UniformTax Regime GST being a single tax, it has made it easier for the taxpayer to pay taxes uniformly. Previously, there used to be multiple taxes at every stage of supply chain, where the taxpayer would get confused, which a disadvantage.
- 18. Benefits ï‚— Removal of multiple taxation. ï‚— Removal of cascading tax effect, i.e. tax on tax. ï‚— Increase in the production of goods and services ï‚— Increase in the demand and supply of goods and services. ï‚— Due to lower burden of taxes, there is a reduction in overall costs. ï‚— Burden has been decreased on the final tax payer, i.e. Consumer at the end. ï‚— Control over the circulation of black money as the system normally followed by traders and shopkeepers will be put to a mandatory check. Revenue of the government increased by extended tax base.
- 19. Challenges ï‚— Impact on pricing of goods and services due to subsumed taxes. ï‚— To keep a check on the rates of GST. If the rates of GST are over 15%, then the goods would be costlier. ï‚— There are still a few states in India which lack IT Infrastructure. ï‚— A separate law must be drafted. ï‚— Transfer of goods from one state to other all over the country. Continuation of specific exemptions on central GST and state GST. ï‚— Constitutional amendments to enable GST to central and state governments. ï‚— Constitutional amendments to enable levy of GST on imports.
- 20. Challenges to the GST bill ï‚— Creation of the necessary IT infrastructure to implement GST ï‚— Rate structure seems very complex at the first instance ï‚— Change in the mind-set of people who are used to the present indirect system of taxes ï‚— Getting the GST approved at different state levels ï‚— Do the computers have the capability of taking/storing the invoices taken from all the people ï‚— Does the central Bureaucracy take care of the State bureaucracy which are likely to be merged ï‚— Dual monitoring by centre and states--two sources of interface with tax department might turn out to be difficult on practical grounds. ï‚— The training of tax personnel at both at the Central and state levels. ï‚— To create a permanent institutional arrangement to negotiate, harmonise and monitor the reform process as well as the working of the new tax system.