The Building Blocks of Indian GST: CGST, SGST and IGST

Introduction: The History

From the pre-independence era, and over the years, various types of indirect taxes were implemented in the states of India. The introduction of a gamut of taxes gave rise to increasing burden on the taxpayers as well as the Indian government with various compliances, administration and lack of uniformity and transparency. The lengthy, expensive and cumbersome affair to comprehend the array of indirect taxes that had to be complied with, often discouraged businesses and most importantly compliance.

In 2000, as a welcome step, the Indian government embarked on a journey to address these issues by introducing an efficient and robust valued added tax system. To attain this objective a task force viz. the Kelkar Task Force was formed to recommend an efficient design and manner of implementing the Goods and Services Tax (GST) regime in the country. Post deliberations for more than a decade, the Indian Government finally took a reformative step in 2017 by introducing the GST Act in the Indian indirect tax regime. This extensive indirect tax regime replaced the historic taxes prevailing at that time, aiming to unify the indirect tax system in the country.

The first recommendation of the Kelkar Task Force as per its report in 2009 was: GST should be a dual levy imposed concurrently by the Centre and the States, but independently to promote cooperative federalism.

This paved the way to the inception of the following category of GST taxes:

(i) Central Goods and Services Tax (CGST);

(ii) State Goods and Services Tax (SGST)/ Union Territory Goods and Services Tax (UTGST); and

(iii) Integrated Goods and Services Tax (IGST).

Comprehending GST: A Snapshot

Before diving into the intricacies of these primary taxes, let us understand the fundamental concepts of GST. GST characterises a dual nature of value added tax and consumption/ destination-based tax. Let’s understand the concepts of (a) value added tax; and (b) consumption/ destination-based tax in a simpler manner.

Value added tax

GST is attracted at each stage of value addition in the shelf life of goods and services i.e. starting from manufacture until consumption.

Consumption/ destination-based

The ultimate liability of GST falls on the consumer as one of the deciding factor of the applicability of GST is the place of consumption/ destination (denoted as ‘place of supply’ in the regime) of the subject goods and/ or services.

One of the objectives set out by the Government was eliminate the cascading effect of the indirect tax regime of India in order to promote transparency, efficiency, and ease of doing business. To attain this objective, One of the recommendations of the Kelkar committee recommendations, was subsuming the erstwhile indirect taxes in existence under one simplified tax structure.

As a result, the following Central and State taxes previously imposed by the Government of India were subsumed under GST, with the exceptions as mentioned below.

GST is not levied on Petrol (Gasoline), Diesel, Natural Gas, Aviation Turbine Fuel (ATF), Liquefied Petroleum Gas (LPG) for domestic use, until notified by GST Council.

Let us now explore the differences and applications of these primary taxes.

CGST: Central Goods and Services Tax - Definition and Scope

The Central Government of India levies and collects CGST on the occurrence of intra-state supplies of goods and services.

Article 279A of the Constitution empowers the President to establish the Goods and Services Tax Council (GST Council), a joint forum of the Central and State governments. 

SGST: State Goods and Services Tax/ Union Territory Goods and Services Tax - Definition and Scope

The State/ UT Government of India levies and collects SGST/ UTGST on the occurrence on intra-state supplies of goods and services. 

IGST: Integrated Goods and Services Tax: Definition and Scope

The Central Government of India levies and collects IGST on the occurrence of inter-state supplies of goods and services.

Conclusion

The phased switch-over from erstwhile indirect taxes to a more unified approach under the new GST regime, led to a complete wash-off of the cascading effects of taxes levied by State and Central Government of India. GST has brought in ease, transparency and efficiency in running business, coupled with efficient tax administration paving way to encouraging adherence to compliances.

In order to gain confidence for business operations in India, it is essential for one to understand the three main components of the Indian GST regime i.e. CGST, SGST/ UTGST and IGST, the differences, application and compliance requirements.

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Bond Market In India

Bond Market

CXOs!!!

Team Members:

China Bubble

STEEL - MADE IN CHINA??

With every passing day I think when will the recession take back its curse. When will the potential candidates get employed without having to behave like beggers on street. Those who spent huge amount of money to enhance their skills and knowledge so as to beat the other competitors fighting for the same positions.

A small example of how the clubs of the business schools have been affected by Sub Prime( a sneak into the club discussions in our business school):

Be it the Finance Club (FinCoP) where we discuss the Sub prime crisis, Lehman Bros. case, Great depression,Balance Sheet Reviews of companies etc. etc., be it the Strategy club (StratForward) where we discuss which are the companies who were recession proof and what strategy they had applied to do the same. Be it directly related to the topic or not finally we derive the Sub prime effect on the topics.

Leaving apart these trivial issues lets focus on the impact of the same on Global Economy.

Just a small peak in one of the most hit sectors of the world:

Infrastructure Development have been falling in countries like US and UK since the economic bubble burst in the last year. This in return is affecting the steel industry in an adverse way. The steel manufacturers are thus forced to contract their supply in the current fiscal year. We can see reduced growth prospects for the steel manufacturers all over the world. This in turn is leading to fall in steel price.Steel manufacturers are recording losses in their first quarter results.

Lets see which nation looks most prone to face the hit. In order to have a clear picture of the same let us see the steel production scenario globally in the last fiscal.

The following figures are derived from Iron And Steel Statistics Bureau's monthly reports as published in the month August 2009.

The five main steel producing countries of the Far East showed varying production with both China and India showing an increase.
1. China's June steel production showed an increase of 6% to 49.4 million tonnes which contribute to 49.5% of the world's total steel production.
2. Crude steel production in Japan declined by a third in June with the year to date total down 40.7% to 36.7 million tonnes.
3. India has now become the third largest steel producing country in the world with June production up 5.7%, bringing the year to date total to 27.6 million tonnes, an increase of 1.3%.
4. South Korean steel production was down 14.4% in June, and by 17.3% in the year to date to 22.8 million tonnes.
5. Taiwanese production decreased by 29.5% in June and by 39% in the six months to 6.6 million tonnes.
Australian crude steel production dropped by 52% in the first six months to 1.9 million tonnes.


An overview on the past steel production dips:

The biggest fall in demand over one year for the steel industry since the end of the second World War was the 8.7 per cent drop in 1982, towards the end of a downturn in global industry. That was the third consecutive year in which steel industry output fell. There have been only three occasions since 1900 when output has declined for three years in a row. Similar slump periods for the industry were 1930-32, 1944-46 and 1990-92.

Production of crude steel for the countries reporting to the World Steel Association in June 2009 was estimated to be 99.8 million tonnes, a decrease of 16% over June 2008. China accounted for almost half of the global production of steel in 2009, the year to date total fell by 35%. All regions showed a drop in both June and the year to date totals except for that of Middle East.

On the other hand if we compare the steel production contraction we will see a decline in the contraction rate. The contraction rate were as follows:




China followed by India are seen to be the most sensitive in this sector at this point of time. This can be very well validated by the first news I came through in the newspaper on the morning of 28th August:

DEMAND SLUMP HITS TATA STEEL Q1 NET

The company recorded a consolidated loss of Rs. 2209 Crores in the first quarter of the fiscal. If you carefully see the balance sheet of the Company for the quarter ended June 2009 we will see Raw Material cost contributing 38% of the total expense of Tata Steel Ltd. alone and when we look at the consolidated Balance Sheet it is around 29% of the total expense. The consolidated figure gives us the raw material contribution to the business of both Tata Steel Ltd. and Corus. So if we try to arrive at the percetange that Raw material contributes to only Corus it will be around 20%. This means that the rotation of stock is very low due to fall in demand for the finished product in Tata Steel. Even though you say it might be the distance coverage expenses that is high in case of Tata Steel while procuring raw materials I would say it cant throw up such a high difference.


Mr. Laxmi Narayan Mittal is still optimistic about the growth in steel sector in the current fiscal.

Sub prime effect - is it over or still there??

Subprime PPT

http://www.scribd.com/doc/18995919/Subprime-PPT


UBS which was one of the front row investment banks who faced the credit crisis in the last year. It had written down $ 44.2bn following Citi Group and Merill Lynch which wrote off $55.1 bn and $51.8 bn respectively. It had regained its existence with the Swiss Govt. pumping in $ 5.16 bn. Today we saw GOvt. of Switzerland selling off its 9% stake in the bank making a profit of 1.2 billion franc from last year's rescue package. This shows the bank has had a strong footing again and this led to increase in stock price by 4.6% at 17.5 francs and closed at 16.74 francs.

Educomp at a growing spree

The leading private player in Education Sector in India has been growing with help of its two verticles: ICT( Information & Communications Technology) and SMART class. Both of these verticles have helped it grow and become the eighth player on the global list. Educomp's success can be mapped with the 4 Cs required to judge a business:

Credibility: Its revenue growth has established credibility in the Indian Education Sector and its affects can be seen in the stock price hike from a mere 1k level in January 2009 to cross 4.5k in the month of July
Capital: Educomp has allocated Qualified Institutional Placement(QIPs) in order to raise capital for the purpose of raising growth capital and it has announced that it has no plans to buy back its existing FCCBs
Creativity: Its Smart Class initiative backs its creative skills
Content: The increase in the number of schools it tapped in the past few years proves the spread of effective education in the country

Why is Insurance sector Sensitive??

Let me highlight few of the happenings during sub prime crisis in insurance sector:

Remember how the CDOs were re-insured by the credit agencies in order to boost up investment even though these CDOs lacked the credibility due to the fact that the high risk securitites were being hidden under the tranches??

That was the main reason for the crash because the sectoral performance was highly over estimated. So bringing in more FDI in this sector at the current point would mean a high chance of the same happening in the Indian Market.

If FDI is brought into this sector at this point of time and the projected growth of the sectors is estimated to be higher than the actual level then we will see speculations growing and bringing a crash in India as well leading to a fall even before India rises to overtake the so called economic leaders at this interesting time of recession.

Rate the Budget 2009- 10

I give it a 7 out of 10 considering the following factors:

It is not the time to look at the budget being sector specific at this point of time. It is necessary to understand the overall state of the nation which needs to follow inclusive policies at this juncture. The recession has still not loosened its grip and hence the following factors needs to be looked at, at this point of time and I am happy it has been taken care of my by our honourable minister:

1. Bring up the sectors which have been hit the most like infrastructure and IT.
2. To bring up the standards of our economy in sectors like education and healthcare to be ready to be a high potential Investment platform in the near future( when recession looses its grip).
3. And to remain a partially closed economy when it comes to sensitive sectors like insurance and banking.

Please provide your rating rationales

Budget 2009-10

Market sentiments hit the stock market badly today. It was because of the hype created by media and "Experts" who gave an unrealistic view of budget this year. Too many expectations had cropped up and made the market rally up above 15K in the morning but as soon as our honouable Finance Minister presented the budget and made some realistic announcements the market slipped to 14k. It is said to be the biggest market fall since 2001 on budget day. It is really sad to see such reaction on such a steady and potentially growing budget. Few of my friends had bought call in the morning of as high as 180 and it went down to 18 at the end of the market hour... To add to their wounds I said "you should have bought put" [;)]

Good Luck Infra!!