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1156 results in Taxation Law

Page 22 of 58

  • 5 - Estimation of Revenue Neutral Rates for Goods and Services Tax in India

  • from Part II - Revenue Neutrality of GST
    • By R. Kavita Rao, Professor at the National Institute of Public Finance and Policy, New Delhi.
  • R. Kavita Rao, Sacchidananda Mukherjee
  • Book:
    Evolution of Goods and Services Tax in India
    Published online:
    26 April 2019
    Print publication:
    23 May 2019, pp 91-110

  • Summary

    Introduction

    The purpose of this report is to generate Revenue Neutral Rates (RNR) for the Goods and Services Tax (GST) for both the Centre and each individual state using information on the contours of GST that have been decided so far in the discussions of the Union government and the Empowered Committee of State Finance Ministers. For this exercise, it is important to summarise the key features of the design of GST (section titled ‘Key Features of GST Design’). Methodology adopted to estimate RNR is presented in the next section (‘Methodology’). The section titled ‘Results’ provides the combined RNR followed by rates computed for each individual government including the Central government. In undertaking this exercise, two alternative estimates of base of services have been used – one using PROWESS data obtained from CMIE (Centre for Monitoring Indian Economy) and the other using turnover data from the Ministry of Corporate Affairs (MCA) provided by the Ministry of Finance, Government of India (GOI). It should be noted that the entire turnover of firms supplying services would not constitute additional base for GST. There are two possible reasons why the base can be different from the total turnover – one, if these firms purchase taxable goods which are used for providing these services, then they can avail of input tax credit. In other words, the turnover of these purchases needs to be deducted from the turnover of supply of services. Second, since these services in turn can be used as inputs in the supply of presently taxable goods, they would already be a part of the base for taxation of goods at present. Hence, a correction on this count too would be required to identify the extent of turnover of supply of services for final consumption. The methodology used for deriving activity code wise turnover in each of these cases is discussed in the section titled ‘Methodology’.

    Key Features of GST Design

    The key features on which decisions seem to have emerged on the design of GST can be summarised as follows:

    1. Dual GST, a central GST and a state GST both levied on all goods and services.

  • a. It is proposed that there would be a list of exemptions and exclusions from the regime, but the exact items on the list are yet to be decided.

  • 6 - New Assumptions, New Estimates: Scrutinising a New Report on Revenue Neutral Rate

  • from Part II - Revenue Neutrality of GST
    • By R. Kavita Rao, Professor at the National Institute of Public Finance and Policy, New Delhi.
  • R. Kavita Rao, Sacchidananda Mukherjee
  • Book:
    Evolution of Goods and Services Tax in India
    Published online:
    26 April 2019
    Print publication:
    23 May 2019, pp 111-119

  • Summary

    Introduction

    The report produced by the Ministry of Finance Committee on the Revenue Neutral Rate (RNR) and structure of rates for the Goods and Services Tax (GST) (which was headed by the Chief Economic Adviser – CEA) has given a new perspective to the discussion on the introduction of GST in India. At first glance the report suggests that GST can effectively be implemented at more reasonable rates when compared to rates being discussed in earlier press reports, without any loss of revenue to the centre or on average to the states. As is often argued, lower rates of tax are always more attractive since they would be compliance-friendly. The representatives of industry as well as the consultancy firms have pronounced that these are the correct estimates and provide a more reliable basis for introducing GST in India. Lower rates of tax are always attractive and it is the prerogative of the government to take a call on the appropriate rate at which to introduce GST. However, estimating a RNR should be viewed as an exercise to determine the rate of tax at which the government concerned can implement the new regime and obtain the same revenue as it currently does.

    Any exercise to estimate the RNR would be based on assumptions other than on data which is available. There are two sets of estimates discussed in the public domain, one by the National Institute of Public Finance and Policy (NIPFP) and the other by the committee headed by the CEA (these estimates will be referred to as NIPFP and CEA estimates respectively).

    As discussed in the CEA's report, the Ministry of Finance Committee's estimates have been derived by making ‘suitable corrections’ to the NIPFP estimates or the indirect tax turnover estimates as they have been referred to in the report. These two sets of estimates vary considerably and there is a need to identify the sources of difference and the rationale for such a difference. In what follows, an attempt is made to assess each of the changes proposed by the CEA's study. To begin with, a brief summary of the overall approach adopted by both these studies.

  • 7 - Exploring Policy Options to Include Petroleum, Natural Gas and Electricity under the Goods and Services Tax (GST) Regime in India

  • from Part II - Revenue Neutrality of GST
    • By Sacchidananda Mukherjee, Associate Professor at the National Institute of Public Finance and Policy, New Delhi., R. Kavita Rao, Professor at the National Institute of Public Finance and Policy, New Delhi.
  • R. Kavita Rao, Sacchidananda Mukherjee
  • Book:
    Evolution of Goods and Services Tax in India
    Published online:
    26 April 2019
    Print publication:
    23 May 2019, pp 120-146

  • Summary

    Introduction

    Various taxes, duties, levies and cesses on petroleum products and natural gas generate substantial revenues to the Central and State Governments. The tax on petroleum products and corresponding change in prices generate both direct and indirect effects across the sectors. Petroleum products directly enter as an input into a large number of economic activities (e.g., transportation, electricity generation and fertiliser production). Apart from such direct uses, there are a number of indirect uses as well; for instance, since most commodities need to be transported for use by the final consumer, petroleum products enter into the picture. Therefore, changes in prices (or taxes) of petroleum products would have significant impact on the economy both through direct and indirect or cascading routes.

    The present regime of taxation of petroleum products and electricity results in cascading of taxes. Built-in invisible taxes are expected to increase prices in the domestic economy and adversely affect competitiveness of Indian exports as well. Given that the country is working towards the introduction of a comprehensive GST regime, it is an opportune moment to ask whether the proposed GST design is appropriate or whether significant degree of cascading remains. This chapter seeks to explore alternative configurations of the tax regime, with specific reference to petroleum products, and evaluate the extent of cascading under each. Given that these goods provide a major share of the revenues of the Central and State governments in indirect taxes, the comparison is attempted assuming revenue neutrality under all scenarios.

    The other significant aspect of the petroleum sector is that the present administered pricing mechanism does not allow full price pass through for some refinery products (domestic LPG, PDS kerosene, diesel and petrol). This results in under-recoveries for oil marketing companies (OMCs). However, the government has not been providing full compensation to OMCs for such under-recoveries in sales of diesel and petrol. While part of the under-recovery is absorbed by the upstream oil companies, the rest remains stranded costs for the OMCs. The present system of disallowing compensation not only costs the Central Government exchequer (in terms of loss of dividend income), as most of the oil companies are under the Central Public Sector, but also provides a perverse incentive for not saving fossil fuels, thereby polluting the environment.

  • 2 - Towards GST: Choices and Trade-offs

  • from Part I - Genesis and Evolution of GST in India
  • R. Kavita Rao, Sacchidananda Mukherjee
  • Book:
    Evolution of Goods and Services Tax in India
    Published online:
    26 April 2019
    Print publication:
    23 May 2019, pp 36-44

  • Summary

    Why GST?

    The announcement by union finance minister P.C. Chidambaram in this year's [2006–07] budget speech of his intent to introduce a national goods and services tax (GST) from 2010 has been enthusiastically welcomed by many, especially corporate businesses. This is understandable. For even after more than two decades of reforms, the task of reforming domestic trade taxes and moving towards a system of value added tax (VAT), which was considered necessary for the economy to function efficiently and smoothly, remains incomplete; a full-fledged VAT is still not in place. Neither CENVAT, the current name for excise duties levied by the union government, which is purportedly built on the VAT principle, nor the VATs that have come into operation in the majority of the states since April 2005 in replacement of their sales taxes bear all the attributes associated with a good VAT. Excises are a tax on manufacturing and suffer all the limitations of a manufacturer-level tax (definitional, correct value determination, and so on), despite heroic efforts to get around them. While the rates have been compressed into a general rate of 16 per cent, selective exemptions/concessions continue resulting in effect in multiplicity of rates. Services are also being taxed by the centre but selectively and not in an integrated fashion with goods. While cascading is sought to be alleviated by allowing credit for the tax paid on the purchase of services used as inputs against CENVAT payable on the manufactured product, the two taxes remain separate and administrated under different statutes. Crediting of service tax against CENVAT is riddled with rules that are far from simple. On the states’ side, considerable progress has been made towards evolving a harmonised system of VAT. Even so, deficiencies and irritants remain. Efforts for harmonisation with the prescription of a uniform standard floor rate notwithstanding, the structure of the state VATs remains diverse and flawed, with many states deviating from the agreed rate scheme unilaterally. Their rate structure pays no heed to the basic tenet of VAT, viz., taxation of inputs and final products at the same rate. Industrial inputs are taxed at a lower rate than what is applicable generally and a large number of commodities are taxed at a rate much lower than the general rate.

  • 4 - Present State of Goods and Services Tax (GST) Reform in India

  • from Part I - Genesis and Evolution of GST in India
  • R. Kavita Rao, Sacchidananda Mukherjee
  • Book:
    Evolution of Goods and Services Tax in India
    Published online:
    26 April 2019
    Print publication:
    23 May 2019, pp 60-88

  • Summary

    Introduction

    India is moving towards introduction of Goods and Services Tax (GST). The GST would be a multistage comprehensive value added tax encompassing both goods and services. In the federal structure of India and under the constitutionally assigned taxation powers to different governments, GST would be a major indirect tax reform, as both the Centre (the Union Government) and State Governments have concurrent rights to tax goods as well services at every stage of value addition in production and distribution.

    The proposed GST builds on a series of reforms of indirect taxation. The introduction of Value Added Tax (VAT) at State level, mostly since April 2005, resulted in a first round of cleaning up of hidden indirect taxes which facilitated expansion of the tax base (Aggarwal 1995), better tax compliance and higher tax buoyancy for the majority of Indian States. It is envisaged that the proposed GST will further clean up the indirect tax system by reducing cascading of taxes and facilitating a nation-wide market for goods and services. Under GST, it is expected that harmonisation of indirect tax structure (tax rates and tax base across States), concurrent taxation power of Centre and States on consumption of goods and services and joint monitoring of same taxpayers would result in better tax compliance, reduce leakage of revenue and better coordination between Central and State tax administrations. The reduction of cascading of taxes and transaction costs associated with inter-State sales of goods could facilitate higher economic growth by attracting investment. It is the expectation of the Central Government that introduction of GST will improve India's ranking in World Bank's ease of doing business as it will remove cascading of taxes as well as transaction costs involved in distribution of goods and provide services across States.

    Major fiscal motives behind the proposal to introduce GST include the expansion of fiscal space of the Central and State governments to address rising demands for public expenditure and revenue constraints; overcoming the Constitutional barriers relating to taxation by removing definitional differences between goods and services and the manufacturing and distribution of goods; and achieve greater fiscal prudence by aligning taxation powers to expenditure commitments/responsibilities under fiscal federalism.

  • 3 - Goods and Services Tax: The Thirteenth Finance Commission and the Way Forward

  • from Part I - Genesis and Evolution of GST in India
    • By R. Kavita Rao, Professor at the National Institute of Public Finance and Policy, New Delhi.
  • R. Kavita Rao, Sacchidananda Mukherjee
  • Book:
    Evolution of Goods and Services Tax in India
    Published online:
    26 April 2019
    Print publication:
    23 May 2019, pp 45-59

  • Summary

    Introduction

    The introduction of the goods and services tax (GST) is expected to be a major reform in the arena of domestic indirect taxes in India. While this new regime will change the tax base of both central and state taxes, the extent of its impact on the economy as well as the finances of various levels of government was not clear. The Thirteenth Finance Commission (THFC) was assigned the task of incorporating the impact of the proposed implementation of the GST into its overall recommendations. To obtain an assessment of the GST's likely impact, the THFC constituted a task force. The task force submitted its report (Finance Commission 2009a) to the THFC on 15 December 2009 and its recommendations were endorsed in the final Report of the THFC (2010–2015) (Finance Commission 2009b, subsequently Report).

    The recommendations of the THFC, which says that ‘both the Centre and the States should conclude a Grand Bargain to implement the model GST’, comprise five elements.

  • There will be a prescribed design for the GST as a consumption-based tax subsuming the bulk of all indirect taxes, including stamp duty and state excises. It will be a single rate regime with a few exemptions, have a uniform threshold for the centre and all states, uniform rates of tax across all states, and include a proposed design for treatment of interstate transactions.

  • There will be an emphasis on harmonised tax laws and procedures for administration, and common dispute resolution and advance ruling mechanisms, as well as simultaneous implementation by all the states.

  • There will be a binding agreement between the centre and the states on the design as well as the rates of tax to be adopted, and the conditions under which the rates can be altered. The THFC's proposed scheme says that for decreasing the rates, all states will have to agree, but for increasing them, only two-thirds need agree. The power of veto will be vested in the centre.

  • In the event of the agreement being violated, disincentives in the form of withholding state-specific grants and GST compensation grants will apply.

  • There will be a phased implementation allowing for delayed incorporation of real estate transactions into the base and allowing for a two-rate tax in place of one in the initial years of implementation, with an agreement to move forward before 31 December 2014.

  • 9 - Goods and Services Tax: Performance and Progress

  • from Part III - GST Administration and Possible Impacts of GST on Indian Economy
    • By R. Kavita Rao, Professor at the National Institute of Public Finance and Policy, New Delhi.
  • R. Kavita Rao, Sacchidananda Mukherjee
  • Book:
    Evolution of Goods and Services Tax in India
    Published online:
    26 April 2019
    Print publication:
    23 May 2019, pp 166-181

  • Summary

    After considerable effort by the Goods and Services Tax (GST) council, GST has been ushered into India from 1 July 2017. At the time of writing this chapter, GST has been in operation for over 12 months. The new regime has faced a number of hurdles and has therefore needed some significant changes, spanning changes in rates of tax, changes in the forms and procedures for filing returns and introduction of new compliance-related features like the issue of an e-way bill for the transport of goods from one location to another. This chapter is an attempt to assess the performance of the GST regime in this one year. The economy has been subject to two major shocks in the past two years – the withdrawal of high value currency notes, otherwise referred to demonetisation, and the introduction of GST. Since it is rather early as well as technically difficult to disentangle the effects of these two effects on the economy, in the section titled ‘Likely Impact of GST’, an attempt is made to identify the kinds of effects change in the indirect tax regime could have on the economy. This is followed by a discussion on the impact of GST on revenues of union and state governments (section titled ‘Revenue Performance Under GST’). Finally, with GST bringing with itself a substantially different administration and compliance regime, the final section looks at some of the issues emerging out of the compliance framework for GST. Before exploring these issues, presented below is a brief summary of the key features of the GST regime in place today.

    The key features of the GST regime implemented in the country on 1 July 2017 can be summarised as follows:

  • A dual VAT regime covering goods and services: Every transaction of supply of goods and services would be subject to two taxes – a Central GST and a State GST. The tax is designed as a value added tax and it incorporates the feature of input tax credit for taxes paid on purchased goods and services. This represented a big change from the earlier regime where both central and state taxes had access to less than comprehensive tax bases. Centre could not tax sale and purchase of goods while states could not tax services. The new regime therefore meant an expansion in the tax base.

  • Introduction

    • By R. Kavita Rao, Professor at the National Institute of Public Finance and Policy, New Delhi., Sacchidananda Mukherjee, Associate Professor at the National Institute of Public Finance and Policy, New Delhi.
  • R. Kavita Rao, Sacchidananda Mukherjee
  • Book:
    Evolution of Goods and Services Tax in India
    Published online:
    26 April 2019
    Print publication:
    23 May 2019, pp 1-4

  • Summary

    The objective of this book is to provide a comprehensive overview of the journey towards introduction of the goods and services tax (GST) in India. The book is based on research carried out at the National Institute of Public Finance and Policy (NIPFP), New Delhi, spanning over a decade. The basic objective of the volume is to highlight the contributions of the chapters in shaping the design and structure of the GST as well as capturing the evolution of the concept of GST in India since the late 1980s. The Indian GST is unique for its structure, design and administrative framework. The country-specific experience discussed in the chapters will help the readers to familiarise themselves with the alternative arrangements available with reference to design, structure and administration of GST from the perspective of a federal country. The concept of GST evolved over time in India and successive tax reform committees played an important role in shaping the Indian indirect tax system that finally culminated in the introduction of GST. Designing a destination-based dual value-added tax (VAT) system for a federal country like India was a challenge and from this perspective the Indian GST is unique. In this volume an attempt is made to capture the historical journey of policy research that was initiated since the inception of the government's interest in a national-level GST for India in the union budget speech of 2006–07. The introductory chapter of the book summarises the recommendations of successive tax reforms committees, constituted since Independence, with specific reference to the indirect tax regime. The recommendations contributed to a clear focus on the removal of the cascading of taxes (building up of taxes) and transition to a destination-based GST regime in India. This volume covers tax reforms carried out both in central and state indirect taxes during the last four decades and provides a background for the introduction of GST.

    The chapters were written at different points in time spanning a decade and contributed to the then-ongoing discussion on GST. Each chapter of the book is based on rigorous theoretical as well as empirical research. In many countries, GST has been a tax levied by the national government.

  • 8 - Administration of GST: Can We Continue with Present Structures?

  • from Part III - GST Administration and Possible Impacts of GST on Indian Economy
    • By R. Kavita Rao, Professor at the National Institute of Public Finance and Policy, New Delhi., Sacchidananda Mukherjee, Associate Professor at the National Institute of Public Finance and Policy, New Delhi.
  • R. Kavita Rao, Sacchidananda Mukherjee
  • Book:
    Evolution of Goods and Services Tax in India
    Published online:
    26 April 2019
    Print publication:
    23 May 2019, pp 149-165

  • Summary

    Introduction

    With some progress in the design of the Goods and Services Tax (GST), there is an emerging need to explore the options for administering the new tax regime. From the discussions and decisions taken so far, one of the important parameters of the new regime is the applicability of two taxes (Central GST, CGST, and State GST, SGST) on each and every transaction of supply of good and/or service in the country. The central tax would accrue to the central government and the state tax would accrue to the state governments. Inter-state sales and imports will attract Integrated GST (IGST) and it is likely to be administered by the central government. IGST will comprise of the prevailing SGST and CGST rates for the concerned good and it will work as a mechanism (or clearing house) to transfer input tax credits from the origin state to the destination state. Compared to the existing regime, the proposed tax represents a significant change in the tax administration. The central tax administration would need to deal with wholesale and retail traders in addition to the existing taxpayers (e.g., manufacturers, service providers). Similarly, the state tax departments would need to deal with service providers. The workload per employee as well as the skill set associated with tax administration would have to undergo a sharp change if the taxes are to be administered by maintaining a status quo on the forms of administration. In other words, grafting the new tax on to existing tax administrations would impose a significant cost of transition in addition to the higher costs of collection. On the other hand, there would be quite a sharp change in the tax environment faced by a segment of the taxpayers – all taxpayers other than the manufacturers who had faced one tax and one tax department (e.g., service providers, wholesale and retail traders). Under the new regime potentially they will face two tax departments, and potentially an increase in the compliance cost associated with the new regime, thereby raising the opportunity cost of being in the tax system. The result could either be higher evasion or higher resistance to the new tax regime.

  • 1 - Introduction

  • Mark Brabazon
  • Book:
    International Taxation of Trust Income
    Published online:
    29 April 2019
    Print publication:
    02 May 2019, pp 1-24

  • Summary

    Chapter 1 initially identifies the goals of the book to identify the principles by which countries tax income derived by, through or from a trust in an international context where more than one country has a potential taxing claim, to identify situations of double- or non-taxation that can arise from the interaction of national tax systems in treaty and non-treaty situations, and to postulate principles of tax and treaty design to avoid inappropriate double- or non-taxation. It then describes the method of analysis and prior literature, identifies the characteristics of the trust as a legal and economic institution, identifies the general and international taxing options for trust-related income and tax concepts used in the book, defines the scope of the book by reference to trusts treated as such by national tax rules and outlines the structure of the book.

Page 22 of 58