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Industry perspective on
Indirect taxes
Raghuraman Muthukrishnan
Controller IBM ( India /South Asia)
BIO – Raghuraman Muthukrishnan.
Current Position – Controller IBM India / South Asia
Please insert
Photo here
 Career : 29 yrs experience in
handling tax and customer
fulfillment operations . ( With IBM
about 4 yrs )
 Job history ( last 15 years )
 Currently Controller SEZ/STP
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opns IBM India / South Asia .IBM
since Oct 2012
Country tax manager IBM India /
SA 2010 -2012
Indirect tax Manager for India /SA ,
IBM - 2009-2010
Senior Contracts Manager at DELL
INDIA - 2008-2009.
Head – Commercial and legal at
ACER INIDA -2005 to 2008
Head- Commercial at BPL Ltd 1998 to 2005.
Educational background
Bachelors in Law ( 1991 )
Masters in Commerce and
economics ( 1983 )
Hobbies
 Books (philosophy and
Management )
 Music ( Indian and western
classics )
 Sports (playing Cricket )
 Spending time with family
and occasional cooking of
south Indian recipes
“Individually .we are one drop…Together we are an ocean”
ICA1 presentation
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Agenda
1. Introduction
2. Tax environment in India
3. Tax reforms in the pipeline
4. Snap shot on Indirect taxes
5. Newly introduced negative list based taxation
6. Proposed Goods and Services Tax in India
7. Recovery of tax credits
8. Tax administration in India
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Indirect tax - A profile
Governance model
 While indirect taxes
is collection and
remittance it
impacts profitability
if the taxes are not
properly captured
and paid as per the
law
 Delays will impact
the above the line
results
 Business contracts
will need to be
vetted for right
taxes
Profitability
Compliance
Systems
 Robust Compliance
is the key for
success
 Lot of focus by the
top management on
the compliance
since it impacts
reputation and
profits
 IDT personnel are
treated as SME for
business advisory
and Solutioning
 System development is the key for
seamless deliverables
 IDT is the key player and stakeholder
IDT revenues contribute to 10 % of GDP of India and therefore it is a collective effort
between corporate and Government to have good governance model in place
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Legislative shortcomings scenario in India
Indirect
Taxes in
India
Key
Shortcomings
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 Federal and State structure of tax in India
 CENVAT credit scheme (from 2004) and State VAT (from
2005) introduced as part of tax reforms agenda to reduce the
cascading aspect
 However, current tax base is fragmented between Centre and
States
 Existing tax dual structure has cascading effects due to
multiplicity of taxes
 This acts as a hurdle in creating a free trade/ single market
 Multiplicity of taxes paid on inputs not entirely available as
credits against supply of good and services resulting in
cascading effect and increase in cost burden on the end
customer . Key shortcomings :
I. VAT paid on goods used for providing services not
available as credits
II. Cascading burden of excise and service tax for
traders dealing with distribution of goods therefore
increase in cost to the customer
III. Non-inclusion of other
indirect taxes (like entry tax)
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under VAT
IV. Burden of CST under VAT for interstate movement
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India actively pursuing tax reforms - key to its transformation journey
 Beginning early 1990s,
in reaction to a severe
macro- economic crisis
involving high fiscal
deficits, the Indian tax
system entered a way of
reforms
 Since then the Indian
economy has recorded
impressive growth and
has transformed into an
export-led open
economy
 Realizing that tax
systems in such a
growing economy
should not only raise
revenues but also
minimize distortions and
adjust to requirements
of a market economy,
further reforms are
proposed to the existing
tax structure
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Goods and Services Tax – Road map to be announced soon
 Proposal to implement a comprehensive indirect tax structure, aimed at
easier compliance and speedier system of passing credits
Direct tax code - likely to be implemented soon
 The Direct Taxes Code Bill, 2009, aimed at aligning Indian tax laws
with internationally accepted principles and best practices has been
unveiled
IFRS convergence
 Proposed convergence with, which is emerging throughout the world
as a single, consistent accounting framework
Authority for Advance Ruling to be merged
 Proposal to merge the two Authorities' for Advance Rulings on Direct
and Indirect Taxes to enhance efficiency in tax administration
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SNAPSHOT OF PRESENT TAX REGIME
Central levies
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Customs duty - on imports into
State levies
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VAT / Local Sales tax - on sale
India
of goods within a particular
CENVAT (central excise duty) - on
state, including works contract
manufacture of goods
and lease transactions
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Service tax – based on negative list
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Central sales tax (CST) – on inter -
goods in the state/ local area for
state sale of goods
use, consumption or sale
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R & D Cess – on import of
technology
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Entry tax / octroi - on entry of
Ancillary taxes – luxury tax,
turnover tax, additional tax,
surcharge, etc
Vision is to introduce National GST soon
ICA1 presentation
ACTIVITIES THAT ATTRACT INDIRECT TAXES
 The following activities would typically attract indirect
taxes in India:
Sale or purchase of goods/ moveable property
Provision of specified taxable services
Import of goods into India
Manufacture of goods in India
Movement of goods between different states for
sale, consumption or use within state/ municipal
limits
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BASIC CONCEPTS
Sales Tax is a tax on sale of goods
Sale
Basic ingredients
• Transfer of property in goods, i.e.
transfer of risk, ownership and reward
associated with the goods
• From one person to another, i.e. there
should be two independent parties
• For a price, i.e. there should be a
consideration in terms of cash, deferred
payment or any other valuable
consideration
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Goods
• All kinds of movable property
Excluding
• Newspapers, actionable claims,
stocks, shares and securities
Including
• Intangibles like software, copyrights,
trade licenses, etc
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BASIC CONCEPTS …
Works contract and lease deemed to be sale
Works contracts
Lease
Basic ingredients
Basic ingredients
• Involve both supply of goods & provision
of services
• Transfer of right to use goods
• Transfer of property in goods to take
place during execution of work
• Includes both operating and financial
leases
• Only portion of contract relatable to
supply of goods liable to sales tax/Works
Contract Tax (‘WCT’)
Examples
• Annual maintenance contracts, electrical
contracts, etc
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KINDS OF SALE AND THEIR TAXABILITY
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Local sales
Goods remain within the same state, pursuant
to the sale
Taxable under the relevant
State legislation
Inter-state
sales
Movement of goods from one State to another,
within India, pursuant to the sale
Taxable under Central Sales
Tax Act, 1956 (‘CST Act’)
Export/ Import
Goods sent out of or brought into India from
outside India, pursuant to sale
Exempt from tax as per the
Constitution of India
In-bond sale
Import of goods pursuant to an existing
purchase order of customer
Exempt from tax as per the
Constitution of India read
with the CST Act
High-sea sale
Sale of goods (procured from outside India) by
endorsing documents of title while goods in
transit & before crossing customs frontiers
Exempt from tax as per the
Constitution of India read
with the CST Act
In-transit sale
Sale of goods (moving pursuant to an interstate sale) by endorsing documents of title while
goods in transit
Exempt from tax as per the
Constitution of India read
with the CST Act
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NEGATIVE LIST OF SERVICES - INTRODUCTION
 Introduction of taxation of services based on negative
Negative list
of services
list
 Revamp of various provisions of the Finance Act, 1994
 Existing concepts relating to taxability of various revenue
streams, classification, valuation, abatements,
exemptions, exports, imports and credits scheme would
change
 Draft Guidance Papers issued towards the following
 Definition of service
 Negative list of services
 Exemptions
 Place of Provision of Service
Complete overhaul of taxation of services
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Federal and State taxes proposed to be subsumed in GST
 Central Excise Duties including additional excise duties
 Additional duties of customs in lieu of excise (“CVD”) and
Central
levies to
be
subsumed
State
levies to
be
subsume
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VAT (“ACD”), i.e.., on imports
 Central Sales Tax (“CST”)
 Service tax
 Cesses and surcharges levied by Union, i.e.., education
cess etc
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Central GST
and
State GST
VAT or Sales tax
Entry tax
Entertainment tax
Luxury tax, Tax on betting etc
Cesses and surcharges levied by States
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Key features of GST
Dual
Structure
of GST
Scope of
services
Compliance
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 ‘Dual structure’ consisting of ‘Central GST’
and ‘State GST’
 All the transactions of sale of goods or services
would be liable to Central GST as well as State GST
 Every state may have different laws for State GST
 May widen the scope of the taxable services to cover all sort
of services
 Certain exemptions could be to essential sectors viz. health
and education
 PAN based taxpayer identification number to be
issued
• Periodical returns to be filed with the Central GST
Authorities and the State GST Authorities
GST to benefit taxpayers in terms of simplified taxation and compliance, uniformity across
states, minimal cascading of taxes and reduced tax burden on consumers
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Key features of GST…contd…
Tax on goods
and services
 Goods and Services Tax (“GST”) – is a comprehensive value added
tax on goods and services
 In a GST regime, goods and services are not differentiated as they
move through the supply chain
Tax on each
transaction
 Covers levies on a transaction which commences with import/
domestic procurement/ manufacture/ production of goods or
provision of services at one end and consumption of goods and
services at the other end
 Levied on the value added at each stage of sale and purchase
Free flow of
tax credits
 Results in free flow of tax credits without limit or barriers of state
boundaries till it reaches the ultimate consumer
Tax to be borne
by consumer
 In a GST environment, different stages of production and distribution
are interpreted as a mere pass through
 Incidence of tax is borne by the ultimate consumer
Subsume all
taxes and levies
 GST will subsume all transaction taxes and levies that are
– primarily in the nature of indirect taxes and
– levied on supply of goods or on provision of services
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INDIRECT TAX LEVIES IN INDIA
Cenvat Credit
scheme
Introduction
- CENVAT
credit
Inputs used in/ in
relation to
manufacture of final
product
Capital goods used
in factory
Manufacturer
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Input services used in
manufacture and
clearance of final
products from place of
removal
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Credit allowed of capital
goods used in office of service
provider or factory of
manufacturer
Credit allowed even if goods
acquired on lease, hire
purchase or loan agreement,
from a financing company
Credit allowed of services
used in relation to setting up a
factory/ office/ premise
Credit allowed of services
used in relation to sales
promotion, advertisement,
procurement, management of
business such as accounting,
auditing, financing,
recruitment & quality control
Inputs used for
providing
output service
Capital goods
used for
providing
output
service
Service Provider
Input services
received &
consumed in
relation to
providing output
service
Tax Administration in India – could take over 10 years to reach finality
SUPREME
COURT
If the tax payer or the Revenue has any grievances with the Order of the High Court, they can prefer an
appeal before the Supreme Court of India
HIGH COURT
If the assessee or the Revenue Authorities have any grievances with the Order of the Tribunal on a
question of law, they can prefer an appeal before the High Court
TRIBUNAL
If the assessee or the Revenue has any grievances with the Order of the Commissioner or Commissioner
(Appeals), they can prefer an appeal before the Jurisdictional Tribunal
COMMISSIONER
(APPEALS)
If the assessee or Revenue has any grievances with the Order of the Joint Commissioner, they can prefer
an appeal before the Commissioner (Appeals)
COMMISSIONER /
JOINT COMMISSIONER
Based on submissions made by the assessee, an order is passed by the Commissioner (or the Joint
Commissioner depending on the amount demanded)
JURISDICTIONAL
AUTHORITIES
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The service tax/ VAT/CST compliance are reported to and scrutinized by the jurisdictional authorities. If
any issue is disputed, the jurisdictional authorities issue a show cause notice requiring the assessee to
defend the tax position adopted. Separately, routine tax audits are conducted and disputed findings are
referred to jurisdictional authorities for issuing show cause notices.
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Thanks !!
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