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G.S.

T, 15th Finance Commission & Tax Reforms


Nihit Kishore
nihit.kishore@gmail.com
1 +91-9654364250
The Journey to GST

First Discussion Paper T h e C o n s t i t u t i o n ( 1 2 2 nd


was released by the Amendment) Bill was introduced in
Empowered Committee the Lok Sabha
2006 2011

Announcement of GST for the first time 2009 Constitution (115th Amendment) Bill
2014
was made by the then Union Finance The Constitution (One
introduced and subsequently lapsed
Minister, during budget of 2006-07 that it H u n d r e d a nd Fir st
would introduced from 1 April 2010 Aug 2016 Amendment) Act was
enacted

May 2017 April 2017 March 2017 Sep 2016

GST Council CGST, IGST, UTGST and GST Council Recommends 1st GST Council
recommends Compensation Cess Acts the CGST, SGST, IGST, Meeting
all the rules passed UTGST and Compensation
A ll S t a t e s
Cess Act
except J&K
passed their 30th June 2017 Journey Continues…
SGST ACT

1st July 2017 8th July2017 29th August,


2018 • Notifying and amending
rules
• Dealing with IT related
GST Launched SGST Act passed by J&K; CGST and IGST Amendments to CGST, IGST, issues
Ordinances promulgated to extend GST to J&K UTGST and Compensation to • Revision of Rates
State Acts enacted • Clarification and
True Economic Integration of India communication with
taxpayers
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GST Law from a Constitutional Perspective (1/2)

Definition of GST
Article 366(12A) “Goods and services tax” means any tax on supply of goods, or services or
both except taxes on the supply of the alcoholic liquor for human
consumption

Sl No Definition Article Definition


1. Goods 366(12) Includes all materials, commodities, and articles [Pre Existing Definition]
2. Service 366 (26A) Anything other than goods [Introduced vide 101st Constitutional Amendment
Act]
3. State 366(26B) With reference to articles 246A, 268, 269,269A and Article 279A includes a
Union territory with Legislature. [Introduced vide 101st Constitutional
Amendment Act]

“Goods and Services tax” law while having unique principles, has significant elements of prior Central
and State laws; and is also inspired by VAT/GST legislation of EU, Australia, Malaysia etc. along with
International VAT/GST guidelines ofOECD

4
GST Law from a Constitutional Perspective (2/2)
 Bill passed by Rajya Sabha on 03.08.2016 & Lok Sabha on 08.08.2016
 Notified as Constitution (101st Amendment ) Act, 2016 on 08.09.2016
 Key Features:
 Concurrent jurisdiction for levy & collection of GST by the Centre & the
States – Article 246A
 Centre to levy & collect IGST on supplies in the course of inter-State trade
or commerce including imports – Article 269A
 Compensation for loss of revenue to States for five years on
recommendation of GSTC – Clause 19
 GST on petroleum crude, high speed diesel, motor spirit (commonly known
as petrol), natural gas & aviation turbine fuel to be levied from a later date
on recommendations of GSTC
5
Pre-GST Indirect Tax Structure in India
Central Taxes State Taxes
• Central Excise duty • State VAT /Sales Tax
• Additional duties of excise • Central Sales Tax
• Excise duty levied under Medicinal • Purchase Tax
& Toilet Preparation Act • Entertainment Tax (other thanthose
• Additional duties of customs (CVD& levied by localbodies)
SAD) • Luxury Tax
• Service Tax • Entry Tax (All forms)
• Surcharges & Cesses • Taxes on lottery, betting &gambling
• Surcharges & Cesses
13 Cesses
GST

Constitution amended to provide concurrent powers to both Centre & States to levy GST
(Centre to tax sale of goods and States to tax provision of services)
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Central Taxes
Multiple State Taxes Single Tax-GST
Tax Multiple State Tax Single Tax
Administrations Administrations Administration
CEx/ST Act & Rules Multiple Acts & Rules
Uniform law
Procedures Multiple procedures
Computerized
uniform procedures
Pre-GST Indirect tax structure in India

GST

SGST/
CGST IGST
UTGST

GST Structure in India


Outside GST !

Alcohol for human Power to tax remains with the


consumption State

Five petroleum
GST Council to decide the date
products – crude
from which GST will be
oil , diesel, petrol,
applicable
natural gas and ATF

Part of GST but power to levy


Tobacco additional excise duty with
Central Government

Entertainment tax Power to tax remains with local


levied by local bodies bodies

8
GST Council – Constitution (Article 279A of the Constitution)

 Chairperson – Union FM
 Vice Chairperson - to be chosen amongst the Ministers of State
Government
 Members - MOS (Finance) and all Ministers of Finance / Taxation
of each State
 Quorum is 50% of total members
 Decision by 75% majority
 States - 2/3 weightage and Centre - 1/3 weightage
 Council to make recommendations on everything related to GST
including laws, rules and rates etc.
Amendment to provide for ad-hoc apportionment of IGST
 Section 17 of the IGST Act has been amended to provide that the amount of
IGST not apportioned to the Centre or the States/UTs may, for the time being,
on the recommendations of the Council, be apportioned at the rate of fifty per
cent. to the Central Government and fifty per cent. to the State Governments or
the Union territories, as the case may be, on ad hoc basis and this amount shall
be adjusted against the amount finally apportioned
Above amendment has already been passed by Parliament and received the assent
of the Hon’ble President of India on 29.08.2018. This amendment will be notified
soon.

23
Amendments in GST (Compensation to States) Act
 Fifty per cent of such amount, as may be recommended by the Council, which remains
unutilised in the Fund, at any point of time in any financial year during the transition period
shall be transferred to the Consolidated Fund of India as the share of Centre and the balance
fifty per cent. shall be distributed amongst the States in the ratio of their base year revenue
 In case of shortfall in the amount collected in the Fund against the requirement of
compensation to be released for any two months’period, fifty per cent. of the same, but not
exceeding the total amount transferred to the Centre and the States as recommended by the
Council, shall be recovered from the Centre and the balance fifty per cent. from the States in
the ratio of their base year revenue
Above amendment has already been passed by Parliament and received the assent of the Hon’ble
President of India on 29.08.2018. This amendment will be notified soon.

24
Main Features of the GST Act (1/5)

 Concurrent jurisdiction for levy & collection of GST by the Centre


(CGST) and the States (SGST)
 Centre to levy and collect IGST on supplies in the course of inter-
State supplies & on imports
 Compensation for loss of revenue to States for five years
 All transactions and processes only through electronic mode – Non-
intrusive administration
 PAN Based Registration
 Registration only if turnover more than Rs. 20 lac (Rs. 10 lacs for
special category States except J&K)
Main Features of the GST Act (2/5)

 Option of Voluntary Registration


 Composition threshold shall be Rs. 100 lakh
 Composition scheme shall not be available to inter-State
suppliers, service providers (except restaurant service) and
specified category of manufacturers
 Deemed Registration in three working days
 Input Tax Credit available on taxes paid on all procurements
(except few specified items)

26
Main Features of the GST Act (3/5)

 Set of auto-populated Monthly returns and Annual Return


 Composition taxpayers to file Quarterly returns
 Automatic generation of returns
 GST Practitioners for assisting filing of returns
 GSTN and GST Suvidha Providers (GSPs) to provide
technology based assistance

27
Main Features of the GST Act (4/5)

 Tax can be deposited by internet banking, NEFT / RTGS, Debit / credit


card and over the counter
 Concept of TDS for certain specified categories wef 01.10.2018
 Concept of TCS for E-Commerce Companies wef 01.10.2018
for intra-state
 The e-way bill system has been introducednation-wid for all inter-
State movement of goods with effect from 01.04.2018. As on
16.06.2018, all States

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Main Features of the GST Act (5/5)

 Interest payable if refund not sanctioned in time


 Refund to be directly credited to bank accounts
 Comprehensive transitional provisions for smooth transition of existing
tax payers to GST regime
 Special procedures for job work
 System of GST Compliance Rating
 Anti-Profiteering provision– National Anti-Profiteering
Authority already set up
 Standing Committee on Anti-Profiteering already set up
 State level Screening Committee already set up
29
Benefits of GST (1/2)

1 Reduction in Cascading of Taxes


Decrease in
2 Overall Reduction in Prices Inflation

3 Common National Market


Ease of Doing
4 Benefits to Small Taxpayers Business

5 Self-Regulating Tax System


Decrease in “Black”
Non-Intrusive Electronic Tax Syste m Transactions
6

30
Benefits of GST (2/2)

7 Simplified Tax Regime


More informed
8 Reduction in Multiplicity of Taxes consumer

9 Consumption Based Tax


Poorer States
10 Abolition of CST to Gain

11 Exports to be Zero Rated


Make in India
12 Protection of Domestic Ind. - IGST

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Goods and Service Tax Network (1/2)
 Incorporated in March 2013 as Section 25 private limited company with paid
up capital of Rs. 10 crore
 Equity Holders
o Central Government - 24.5%
o EC and all States together - 24.5%
o Financial Institutions – 51%
 To function as a Common Pass-through portal for taxpayers-
o submit registration application
o file returns
o make tax payments
 To develop back end modules for 27 States (MODEL –II)
 Infosys appointed as Managed Service Provider (MSP)
 Appointed 73 GST Suvidha Providers (GSPs)
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Goods and Service Tax Network (2/2)
 The GST Council in its 27th meeting held on 04.05.2018 has approved the
change in shareholding pattern of GSTN
 Considering the nature of ‘state’ function’ performed by GSTN, the GST
Council felt that GSTN be converted into a fully owned Government company
 Accordingly, the Council approved acquisition of entire 51 per cent of equity
held by non-Governmental institutions in GSTN amounting to Rs. 5.1 crore,
equally by the Centre and the State Governments

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Role of CBIC (Central Board of Indirect Taxes & Customs)

 Role in Policy making: Drafting of GST Law, Rules & Procedures – CGST,
UTGST & IGST Law
 CBIC is responsible for administration of the CGST and IGST law
 Assessment, Audit, Anti-evasion & enforcement under CGST, UTGST & IGST
Law
 Levy & collection of Central Excise duty on products outside GST – Petroleum
Products & Tobacco
 Levy & collection of Customs duties
 Developing linkages of CBIC - GST System with GSTN
 Training of officials of both Centre & States
 Outreach programs for Trade and Industry
 Director General of Anti- Profiteering, CBIC has been mandated to conduct
detailed enquiry on anti-profiteering cases
Current News – G.S.T
Highlights of the 36th GST Council meeting (July)
• Rate slashes to boost EV sector: The GST Council has reduced the GST rate on electric vehicles (EV) from
12% to 5%. Also, the GST rate on chargers or charging stations for electric vehicles is slashed from 18%
to 5%. Further, the e-buses (seating capacity exceeds 12 passengers) can now be hired by all the local
authorities without charging GST.
CAG Report on G.S.T
• Matching invoice of buyers and sellers, an anti-evasion measure envisaged in the indirect tax regime,
was still not in place.
• One significant area where the full potential of GST (Goods and Services tax) has not been achieved is
the roll out of the simplified tax compliance regime,“
• “The complexity of return mechanism and the technical glitches resulted in roll back of invoice-
matching, rendering the system prone to ITC frauds. Thus, on the whole, the envisaged GST tax
compliance system is non-functional," the report said.
• “The system of payment and settlement of tax that was envisaged for GST was based on one hundred
per cent invoice-matching and availment of input tax credit, as well as settlement of IGST on the basis of
invoice-matching. Neither is possible as of now, as an invoice-matching system has not kicked-in," it
said.
• According to CAG, invoice matching is a “critical requirement", which will yield benefits.
15th Finance Commission

• The Fifteenth Finance Commission was constituted by a Presidential Order in November, 2017
under the Chairmanship of Shri N. K. Singh to decide the formula for devolution of revenue
between Centre and States, for a period of 5 years – April, 2020 to March, 2025.
• What is the Finance Commission?
• The Finance Commission is constituted by the President under article 280 of the Constitution,
mainly to give its recommendations on distribution of tax revenues between the Union and the
States and amongst the States themselves.
• Two distinctive features of the Commission’s work involve redressing the vertical imbalances
between the taxation powers and expenditure responsibilities of the centre and the States
respectively and equalization of all public services across the States.
• The First Finance Commission was constituted vide Presidential Order dated 22.11.1951 under
the chairmanship of Shri K.C. Neogy on 6th April, 1952. Fifteenth Finance Commissions have
been Constituted so far at intervals of every five years.
• Formula used for distribution:
• The share in central taxes is distributed among states based on a formula.
Previous Finance Commissions have considered various factors to
determine the criteria such as the population and income needs of states,
their area and infrastructure, etc. Further, the weightage assigned to each
criterion has varied with each Finance Commission.
The criteria used by the 11th to 14thFinance Commissions are:
• Population is an indicator of the expenditure needs of a state.
Over the years, Finance Commissions have used population data of the
1971 Census. The 14th Finance Commission used the 2011 population data, in
addition to the 1971 data. The 15th Finance Commission has been mandated to use data from the 2011 Census.
• Area is used as a criterion as a state with larger area has to incur additional administrative costs to deliver
services.
• Income distance is the difference between the per capita income of a state with the average per capita income of
all states. States with lower per capita income may be given a higher share to maintain equity among states.
• Forest cover indicates that states with large forest covers bear the cost of not having area available for other
economic activities. Therefore, the rationale is that these states may be given a higher share.
• Grants-in-Aid: Besides the taxes devolved to states, another source of transfers from the centre to states is
grants-in-aid. As per the recommendations of the 14th Finance Commission, grants-in-aid constitute 12% of the
central transfers to states. The 14th Finance Commission had recommended grants to states for three purposes:
(i) disaster relief, (ii) local bodies, and (iii) revenue deficit.
Recent Tax Reforms
• New Direct Tax Code
• The draft legislation on the new Direct Tax Code (DTC), nearly two years in the making, was
finally submitted to Finance Minister Nirmala Sitharaman. The task force headed by Principal
Chief Commissioner of Income Tax Akhilesh Ranjan, which was constituted in November 2017
to review the existing six-decade-old Income-tax Act, has reportedly proposed several far-
reaching changes in its report, which are yet to be made public.
Here are some of the major announcements likely to be made under the new law for income tax.
• More money in the hands of individual taxpayers
• 'Assessing Unit', not 'Assessing Officer‘
• Uniform corporate tax
• No Dividend Distribution Tax
• Repatriation tax ("branch profit tax" for foreign companies on the earnings they repatriate to
their overseas parent)
• Personal income tax (focus of the panel is believed to be on simplifying tax brackets to provide
relief to middle-income taxpayers while removing any excess surcharges that add to the tax
burden)
• Mediation
• Litigation Management Unit
Prelims Questions
Mains Question
Q. HIGHLIGHT THE SHORTCOMINGS IN THE GOODS AND SERVICES TAX (GST). HOW FAR CAN THE
RECENT FINDINGS OF CAG STRENGTHEN THE WEAK LINKS OF THE REFORMED SYSTEM OF
TAXATION IN INDIA? DISCUSS (250 WORDS)
Q. What is goods and services tax (GST) ? Discuss salient features and benefits of
passed GST bill . (12.5 Marks)

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