The release of the first discussion paper on the goods and services tax (GST) has set the ball rolling for taxpayers to initiate action plans towards managing this change. It would not be unreasonable to state that the delta created by switching over to GST would be significant and needs detailed analysis and a robust plan of action to capitalize on opportunities, mitigate risks and deal with the change.

While the paper does not cover all aspects of the proposed regulations, it provides sufficient guidelines on how the regulations will unfold. Some of the significant aspects are the dual model, treatment of interstate transactions, the framework of rates, and expected uniformity in classification and valuation.

It is reasonably clear as to which indirect taxes will be merged into GST as of now. An immediate impact area for businesses paying these taxes is to understand how the tax would change—if at all—under GST. For example, the basis of levy of excise and service tax is likely to change. Similarly, some tax laws are now joining the value-added tax system, which were till now neither fully creditable nor any full credits were allowed to be offset for payment of such taxes—namely, excise duty under the Medicinal and Toilet Preparations (Excise Duties) Act, entertainment tax and luxury tax. These changes can have a considerable impact on trade and industry ranging from how tax is levied to when it is required to be paid to whether credits accrue for such taxes, not to mention compliance changes.

In terms of point of levy, it has been stated that “transactions for a consideration” would be liable to tax. This may therefore suggest that taxes will apply only when goods are sold or services are supplied. However, it is currently being debated on how stock transfers, inter-unit transfers and inter-office services on an interstate basis should be treated.

Source : http://www.livemint.com/