With a tentative target date of 1st April 2017, Goods and Services Tax (GST) enactment paved the way for setting up of GST council after ratification by over 50% states.
GoI is taking the following steps to ensure its smooth implementation that shall be beneficial to traders, service providers and manufacturers: -
i) Ensuring that GST front is ready after having introduced the Model GST draft bill on 14 Jun 2016, was passed by Rajya sabha on 03 Aug 2016 and got the President's nod on 08 Sep 2016
ii) Having Established the legal framework, it is setting up an IT network to be able to handle invoice-level returns through Goods and Service Tax Network Suvidha providers that shall facilitate a front end common module for companies to file returns, registrations and payments and a Back-end for tax authorities processing returns, payments, audits, appeals etc.
iii) Training of over 60000 state and central officers on GST laws and IT frameworks, as source trainers, master trainers, trainers and last leg by end Dec 2016.
iv) Sensitisation of industry (between Jan 17 - Mar 17)
What is GST and what benefits accrue out of it for traders, manufacturers and service providers that have annual revenues of over INR20 lacs?
GST is a consolidated indirect tax levied on end consumer only when they buy goods or services subsuming all cascading taxes (almost) currently being levied by State and Centre, and forms 3 main components:-
i) Central Goods and Services Tax (CGST) - levied by Centre
ii) State Goods and Services Tax (SGST) - levied by State governments, and
iii) Interstate Goods and Services Tax (IGST) - levied by Centre on interstate transfer of goods and services
Primarily, not only are multiple taxes on manufacturers, traders or service providers removed but also: -
i) Taxes are of the same rate across nation
ii) Tax liabilities on manufacturers are reduced
iii) Allows control of authorities on each transaction at invoice level
iv) Facilitate seamless credit, plugging in most loopholes currently being potentially overlooked
To put impact on companies from an accountant/auditor's perspective, GST aims to do the following, and more: -
GST tax rates are currently set at zero, 5%, 10%, 18% and 28%, the first covers almost 50% of items in consumer price index (CPI) most common products, such as food grains, second is on products that are consumed enmass, third is standard rate of GST, finally for products that are currently taxed at 30% i.e. luxury items, some of which may attract additional cess viz. luxury cars or tobacco, and excludes petroleum products, alcoholic beverages, and diesel.
To simply put through an example, consider a Firm's manufacturing expenses are INR3,00,000/-, their supplier having paid (firm's claim of) GST @18% about INR3,60,000/- through materials being procured for INR20,00,000/- by firm for net sales of goods of INR29,00,000/- to end buyer at INR6,00,000/- profit, wherein the tax outlay is as follows: -
Tax Applicable to firm @18% (INR5,22,000/-) - Tax Paid by supplier @18% (INR3,60,000/-) = Tax Outstanding to firm @18%(INR1,62,000/-) which, is also equal to GST @18% by end seller (firm) on their net profits
Total GST paid = 18% of (supply) by seller + 18% of (sale - procurement - manufacture) + 18% of purchase by end buyer i.e. INR3,60,000/- (18% on INR20lac) + INR1,62,000/- (18% of INR6,00,000/-) + INR5,22,000/- (18% of INR29,00,000/-) = INR10,44,000/- (which is about 36% of product's value created through the three stages)
Some of the challenges firms, suppliers and consumers shall face are: -
i) Revenue limits are set to be frequently changed**
ii) GST rates across states and items, viz agro (attract 0%) >> manufacturing (18%) >> FMCG (18%)
iii) Threshold sales being subjected to change
iv) Dual control by state and centre
**provisions being given as per 122nd Amendment Bill of 2014
There are questions that are open for discussions, namely-
i) Is there any accountability of unsold inventory?
ii) Will the GST rates be higher than being currently being levied?
iii) Will the IT infrastructure of GSTNs support complex (and huge) data uploads simply by including service accounting codes or HSN number?
iv) Will the current ERP systems of accounting be able to conveniently be modified to all routine changes?
Some FAQs on GST are answered here (for download)
If you have more questions or suggestions related to GST and implementation, please leave a comment below