GST - Some Issues and Possible Solutions

Issues

Solutions

Meaning

GST is a comprehensive VAT on the supply of goods or services or both. All goods and services will be subject to GST unless specifically exempted i.e. operating on negative concept.

Defined as “any tax on supply of goods or services or both except taxes on supply of the alcoholic liquor for human consumption”.

Central & State taxes subsumed

Central Tax - Central Excise Duty, Service Tax, Additional Custom Duty, Central Surcharge,

State Tax - Sales Tax, Entertainment Tax, Octroi Tax, Entry Tax, Purchase Tax, Luxury Tax, Lottery Tax, Betting and Gambling Tax, State Surcharges, State Cesses

Ingredients

1. Integrated GST levied on inter State transactions by Central Government. (IGST)
2. Central CST levied by Central Government. (CGST)
3. State GST levied by State Government. (SGST)

Mode of implementation

Central Government will make laws for levy of CGST and IGST. State Government will also make law for levy of SGST.

Likely Tax Rates

It is stated by FM that the rates will be Revenue Neutral. Expected to be anything between 16% to 20%.

Not necessary that all states must implement

If a State does not implement then it may continue to charge VAT.

Additional Taxes

Additional Tax not exceeding 1% will be levied by States on inter-State supply of goods for two years or such other period as recommended by GST council.

Procedural Compliance

Likely to increase as it provides that every branch of the manufacturer/ service provider located in different states will have to obtain registration separately.

Common threshold exemption limit for manufacturer/ Service provider

As per the information, there will be common threshold limit for manufacturer/ service provider. This will trouble manufacturer as the limit will be heavily reduced.

Carry forward of CENVAT credit

It has been experienced that in transition phase, the credit is allowed to be carried forward.

Restriction in utilisation of credit

Since, CGST and SGST are to be treated separately, taxes paid against the CGST shall be allowed to be taken as ITC for CGST only and the same is applicable for SGST.

Cross utilization of credits between goods and services allowed?

Yes it would be allowed in both cases of CGST and SGST.

Cascading effect of taxes

It will be nullified in two ways:

1. CST levied by the seller is not available as a credit to the purchaser in present. It becomes a cost of purchase. In future, credit of IGST will be available to the purchaser.
2. Presently, there is multiplicity of taxes which are levied on the same transaction. E.g. when a person stays in hotel, he pays luxury tax and service tax both and credit of luxury tax is not available. This situation will not arise in GST.

Elimination of Double Taxation

Certain industries like Copyright, out of precaution collected both the taxes (S.T. and VAT). In GST there will not be such ambiguity.