Tuesday, October 12, 2010

On way to GST regime

"A march to the Goods and Services Tax Regime"
Shri Mrinal Kanti Chakrabartty, a retired tax officer of the Government of Assam, is now on the heels to publish his 15th book, namely; ‘On way to GST regime’. This book contains a chronological history on the tax measures in Assam since 1939, that is, during the British era. The present taxation laws operative in Assam also got berth in this book. The original Assam sales tax laws were dismantled from time to time and the VAT Law is now operative in Assam since 1st May, 2005. While appreciating the VAT measures in the country, Shri Chakrbartty maintained that the VAT regime has forced the consumers to shoulder a heavy burden of multiplicity tax element in each stage of sale and there had been an unprecedented price hike of the commodities, which tortured them economically. Out of his prolonged experience, he also pointed out some set-backs, faulty ways of action, in legal, practical and technical aspects in the VAT Law, operative in Assam.
According to Shri Chakrabartty, the proposed GST regime will provide fiscal relief to the consumers to a great extent, as there will be no consecutive charge of tax in each sales deal, but only the difference will be reckoned.
This Act will be a conglomeration of Central and State tax measures. A drastic change of the Constitution of India will naturally be necessary for introduction of the consolidated Central and State taxation law.
The new tax law, as Shri Chakrabartty felt, is likely to be enacted by Parliament and the Government of India (Central Government) will be the chief architect of such tax measures. The State Governments are likely to administer the State tax measures under the direction and guidance of the Central Government. He apprehends that, if it practically happens so, the economic sovereignty of the States will likely to be seized. The role of the State Governments in that case will be cipher and the States will be dependable on the Central Government in different aspects.

Sunday, October 10, 2010


Sub-clause (3) of clause 100 read with entry 48 of the Government India Act, 1935 empowered the Provincial Legislatures of the British ruled India to make laws on the specified subjects. In Assam, the first tax laws were enacted 1939 on the sales of petroleum, on agricultural income and on amusement and betting. With the evaluation of time, a series of taxation laws were introduced in the post independent era. At present, as many as eight State tax laws and one Central tax laws are operative in Assam. These tax laws are- (i) on the sales and purchases of goods, the Value Added Tax or VAT, (ii) entry of goods, (iii) professions, trades, callings and employments, (iv) amusement and betting, (v) specified lands, (vi) Luxuries provided in Hotels and Lodging Houses,(vii) agricultural income, (viii) electricity and central sales. The VAT law has been operative in Assam since 1st May, 2005. It is a broad -based tax. The perimeter of the VAT is wide and each State has its own law on VAT.

The Government of India, since some couple of years has been contemplating to introduce a new tax measure in the States of the Indian sub-continent. An ardent exercise is going on to materialize the venture by introducing the Goods & Services Tax (GST). It seems to be a refined form of VAT, but it is intended to make the base more wide multifarious designed. A part from the tax on sales and purchases of goods, a number of tax measures on State and the Union tax are proposed to be merged to give birth to a unified tax law.

GST is not simply VAT plus Service tax, but it seeks a recast and renovation on VAT. GST is a tax on the goods and services with the comprehensive and continuous chain of set-off benefits from producers’ as well as service providers’ level upto the retail sellers, so as to say, the consumers’ level. It is essentially a tax on the value addition at each stage and a supplier at each stage will be eligible for set-off, through a tax credit mechanism. The GST purchased goods and services are available for set-off on the GST to be paid on the supply of the goods and services. The consumers will bear the burden of last tax (GST), charged in the supply chain only. The multiplicity of tax component is not to be occurred, which will have the consequential effect that the price hike burden to the consumers will be lesser. The illustration, given below, will make the position clear-

GST at the manufacturers’ level- (i) purchase value say, Rs. 100.00, (ii) value addition Rs. 30.00,(iii) sale value of the goods and services Rs. 130.00, (iv) tax rate 10 paise in the rupee,(v) GST(out put tax) Rs. 13.00, (vi) input tax credit Rs. 10.00, (vii) net GST (out put tax) Rs. 13.00- (input tax credit) Rs. 10.00= Rs.3.00. Unlike Rs. 13.00 in VAT, out put tax is to be charged at Rs.3.00.
GST at the whole selles’ level -(i) purchase value say, Rs. 130.00, (ii) value addition Rs. 20.00 (iii) sale value of goods and services Rs. 150.00 (iv) tax rate 10 paise in the rupee, (v) GST (out put tax) Rs. 15.00 (vi) input tax credit Rs. 13.00, (vii) net GST (out put tax) Rs. 15.00 –(input tax credit) Rs. 13.00= Rs. 2.00. Unlike Rs. 15.00in VAT, out put tax is to be charged at Rs. 2.00.
GST at the retail sellers’ level- (i) purchase value say, Rs. 150.00, (ii) value addition Rs. 10.00 (iii) sale value of goods and services Rs.10.00, (iii) sale value of goods and services at Rs. 160.00 (iv) tax rate 10 paise in the rupee, (v) GST (out put tax) Rs. 16.00 (vi) input tax credit Rs. 15.00), (vii) Net GST (out put tax) Rs. 16.00 – (input tax credit) Rs. 15.00= e. 1.00. Unlike Rs. 16.00 in VAT, out put tax is to be charged at Re.1.00.

So, unlike VAT regime, the price level is likely to go down and the consumers will be benefitted. The distinction between VAT and GST is that : (a)VAT provides multiplicity of tax at each stage of sale; (b) Payment of sale price on inclusion of the value added tax;
The GST provides that:(a)The difference of tax is payable; (b) A transparent and complete chain of set-off is maintained.

It is likely to widen the coverage of tax base and improve tax compliance. The higher generation of revenue with the lower burden of tax element to the consumers seems to be the moto of the proposed GST regime.

The Central Excise Duty is in fact, leviable at manufacturing point before removal of the goods from the manufacturing spot and such Excise Duty is to be collected and deposited, when the goods are removed from the business premises. The Service Tax is charged on the date of handing over of service or on the date of receipt of payment, whichever is earlier. The VAT, on the other hand, is to be charged at the time of sale of the goods, whether the payment is readily made or there is deferred payment. The GST will ease out such matters. The GST is to be charged on each transact.

The items of taxability in the GST system will be, as below:
(a)on the sale of goods; (b)incorporation of goods in an individual contract; (c)hiring a taxi;(d) hiring equipment; (e)lease of a premises; (f)consultation by a chartered accountant; (g)import & export of the goods; (h)) rendering of any service; an (i)) a transfer of immovable properties etc”. So, its perimeter will be wider.

The GST being chargeable on each transaction, it may also be called as the’ transaction tax’. It is likely to abolish the interpretational problems whether a particular transaction is goods or services; applicability of State or Central levy or applicability of a particular rate, as may arise. So, the GST will have a separate characteristic and its impact will be large and wide.

Unlike the tax laws on the sales or purchases of goods, the levy of tax will not be confined to the moveable properties only. It will extend to the immovable properties as well. For instance-

(i)The lease of premise is nothing but a lease of immovable goods. Actually, the dictionary meaning of the term ‘lease’ is ‘a contract by which one party lets land, property, services etc. to another for a specific time, in return for money. (ii)Levy of duty on premises, that is, on the immovable properties is presently a subject matter of the State revenue department;

Consequently, with the introduction of the GST, any such laws will naturally be irrelevant and will turn to be redundant. The salient features are discussed below:
(i)India is a federal structure of country. The State Governments and the Central Government, apart from other essential ingredients, have been empowered to undertake the economic administration within the frame work of the Constitution, subject to the conditions, restrictions and limitations imposed therein. The GST will have, therefore, mainly two components;
(a) one levied by the Centre; (b) the other levied by the States.
This dual GST model will be implemented through multiple statutes –
(a)CGST for Centre; and (b) SGST for every States.

The basic issues ,like; chargeability, definitions, taxable persons, measure of levy of tax including the voluntary provisions, basis of classification and other allied matters, will be governed by the uniform statutes, as far as practicable.
(ii) Both CGST and SGST would be applicable to all transactions of goods and services except the exempted goods and services, goods, which are to be kept outside the purview of GST. Similar will be the case in respect of the transaction, which is below the quantum limit.
(iii) The taxes paid against the CGST and the SGST are to be credited in two separate accounts. The input credit derived from the CGST is to be utilized for the Central, while likewise the SGST input derived, is to be utilized for the respective States.
(v)Cross utilization of the ITC (Input Tax Credit) between CGST and SGST is not generally permissible.
(vi) The feasible uniform procedure for collection of both CGST and SGST would be prescribed in the respective legislation for the Central and the States.
(vii)The power of administration of the CGST will rest with the Centre, while that of SGST administration with the States.
(viii)Tax return for the relevant period is to be submitted by the tax payers both to the CGST and SGST authorities.
(ix) The tax payers would be allotted a PAN Card, as a tax payer’s identification number. The GST Pan-linked system with a total 13/15 digits to be worked out in consultation with the Income Tax department, will mainly be linked with the Income tax PAN system, facilitating exchange of data and tax payer’s compliance.
(x)Assessment, enforcement, scrutiny and audit would be undertaken by the authorities, which will be engaged for collecting the tax with information sharing between the Centre and the States.

In addition to the above, the deals at the inter-State level will be termed as the Inter-State GST (IGST). The utilization of the inter-State supply of goods and services will be made under the IGST model. The ITC will be from the respective inter-State level.
‘Dual’ means - ‘two fold.’ India is a federal structured country. The Central and the State Governments have been provided with power to rule the country with the division of powers enunciated in the Constitution. In the economic scenario, particularly in relation to the levy and collection of tax, appropriate legislation is to be worked out by Parliament and the State Legislatures, as envisaged in clause (1) of Article 246 read with List I (Union List) and clause (3) of Article 246 read with List II (State List). In addition to the above clause (2) of Article 246 read with List- III (Concurrent List), the power can be exercised by the Union and the States concurrently. The Central and the State Governments are to be empowered to perform their distinctive duties in making enactments in the matter of raising revenue resources vis-a-vis guarding any possible leakage or drainage of revenue. A dual GST is a product of fiscal federalism, keeping in view, the Constitutional requirement.
The basic architecture for subsumation designed in the GST system and l the principle formulated thereof, are-
(i)Taxes or levies to be subsumed should primarily in the nature of indirect taxes, either on the supply of the goods or on the supply of services; (ii) Taxes on levies to be subsumed, should be part of the transaction chain, which commences with the import/manufacture/production of goods or provision of services at one end and the consumption of goods and services on the other; (iii)The subsumation should result in free flow of tax credit in intra-State and inter-State levels; (iv)The taxes levied and the fees, those are specially related to the supply of the goods and services, should not be subsumed under GST; (v)Revenue fairness for both Union and States individually would need to be attempted.
The basic principle of the GST being as such, the Empowered Committee recommended that the following Central Taxes, administered by the Government of India, ab-initio, are to be subsumed under the Goods and Services Tax net;
(a)Central Excise Duty; (b) Additional Excise Duty;(c) The Central Duty levied under the Medicinal and Toiletries; (d) Preparation Act;(e) Service Tax;Additional Customs Duty, commonly known as Countervailng Duty (CVD) (f) Special Additional Duty of Customs- 4% (SAD); (g)Surcharges; and (h)Cesses
Likewise, the following State taxes have been proposed to be incorporated in the GST net:
(a)VAT/Sales tax;(b) Entertainment tax (unless it is levied by the local bodies);(c) Luxury tax; (d)Taxes on lottery, betting and gambling (e) State Cesses and Surcharges in so far as they relate to supply of goods and services; and (f)Entry tax not in lieu of Octroi.
The movement of goods, occurring from one State to another, not by way of sale, but by way of stock transfer for the purpose of sale out side the State or for any manufacturing activities or for other purposes, is restricted from levy of any tax, as laid down in sub-clause (a) of clause (1) of Article 286 of the Constitution. Any levy of tax is, therefore, beyond the ambit and competence of the State Legislatures. The Central Act has exempted tax on the said stock transfer of goods subject to some conditions and restrictions with production of satisfactory evidences. The GST literature has not reflected properly as to the question taxability or otherwise of the goods to be moved from one State to another on stock transfer. However, time will say as to the modus operandi of this tax measure.
The following will be excluded in the GST tax net :
(a) Direct Taxes; (b) Property Taxes; (c) Stamp Duties; (d) Toll Tax; (e) Passenger Tax; (f)Road Tax; (g)Telecom(h) Licence Fee; and 9i)Tax on Electricity.
The Central Government constituted the State Empowered Committee to work out the ways and means, to examine and to prepare a road map on the proposed system of the GST, as done in the case of VAT. T is on the heels to carry out such a heavy responsibility. The Empowered Committee with the concurrence of the Central Government like wise constituted a Joint Working Committee Group with a view to study the models of the GST in the global sphere, if necessary, to provide alternative suggestions, keeping in view India’s fiscal position. The suggestions of the Joint Working Group will include as well the following :
(i)The GST is to be a revenue- fair with sufficient growth of revenue to the Centre and the States. Interest of Special Category, North East States and the Union Territories have to receive due consideration. (II)A study by the group will be necessary in which power of levy, collection and appropriation of revenue by the Centre and State should be categorically mentioned besides providing the manner with the pros and cons of the various identical models. (III)There should not be any double taxation. (IV)The problems faced in the matter of inter-State transactions and revenue loss should have a suitable end. (V)A suitable solution over the question of exempted, non-VAT items, petroleum products and alcohol might be well treated by exclusion from the GST regime. (VI)The trade, industry, agriculture and the consumers’ interest are well guarded and the Central-State relationship is maintained cordially.
. The present multifarious system of tax has practically crippled the economy of the country. A commodity has to suffer various incidence of tax right from the production to reach the consumers’ hands by this way or that. The tax levied in different aspect is approximately about 27.5%. In GST regime, such total incidence of tax is likely to be reduced and to come down within approximate perimeter of 20%. Obviously, a reduction of the quantum of tax levy is expected.

High rate of tax generally paves the way for mounting evasion of taxes. A trader develops the mentality to escape from heavy burden of tax and adopts various fraudulent means to evade taxes. This is long grown phenomenon of the traders if reduced considerably, the trend and tendency of evasion of tax, is likely to be minimised to a considerable extent. However, it can not be said categorically that such a modus- operandi will take a final good-bye. It can, however, be well expected that the revenue generation will be accelerated to a considerable extent.

Globalization of economy is now one of the min themes of the world nations. Any good tax policy aims at social and cultural up-liftment, global economic realities, administrative efficiency, technological development, economic growth, stability, equity, to ensure welfare of the economically weaker and the vulnerable sections of population. GST will cut the cascading effect and thus can benefit not only to the consumers but also to the industry at large.The intentions of the global nations are as well to make out an all round competition at the global levels and it is not necessarily on the regional or country basis. All are eager to adopt common tax system, uniforms and simple, as well a common marketing platform. There is a common thought that the lower rate of tax will yield higher revenue, as the tax dodging episode is likely to be reduced, when there is lesser burden of tax.

The GST law will be an amalgamation of the measure of tax by the State, the Centre and also at the inter-State level. The powers and functions will as well be divisible amongst the three. The respective provisions of law and the power exercise, it is believed, will maintain their own entity. A question naturally crops up whether Parliament will be vested with the power to make enactment of the GST law or the State Legislature will be responsible for enactment of the portion of law relating to the respective States. That is a policy matter and no comment at this stage seems necessary. However, apprehension is there that the States may lose their autonomy and will be forced to be dependent on the centre in all spheres.
The literature on the GST provided an idea that there will be a drastic change in the Central and State tax structure. Such change will only be possible, when bases are prepared in the Constitution. At present the power scenario of the Centre and States are divisible in the Seventh Schedule of the Constitution. If any unified law is enacted, the Constitutional set up will require amendment. An amendment of the Constitution will thus be imperative and the Seventh Schedule of the Constitution (Union List, State List and Concurrent List) will require renovation.

(Mrinal Kanti Chakrabartty)
“Rudra Bhawan”, Radha Govinda Barua Road, 10 Lakhimipth,Guwahati-781-024