The Goods and Services Tax (GST) Bill was tabled in the Lok Sabha today. This bill has faced stringent opposition from states in the past, the main reason why the bill couldn’t be passed by the previous Congress government.
The bill seeks to rationalise state and central indirect taxes into a harmonised tax structure. Currently, companies pay multiple taxes at the state and central levels, which raises the prices of their products, making them less competitive compared with imports from China and other low-cost locations. The hassle and time wasted in filing myriad taxes also deters entrepreneurs and foreign companies from investing in India.
The Narendra Modi government made passage of this bill a top priority. Finance Minister Arun Jaitley reached out to states early, so that the government could table this major legislation in time for the winter session.
Here are seven things you should know about the bill:
1. Passing the bill includes an amendment to the constitution. That means it needs to be cleared by two-third majority in both houses of parliament. The BJP’s overwhelming majority in the Lok Sabha means that hurdle is easy to clear, but it might run into opposition in the Rajya Sabha where the BJP is in a minority. Modi will need to reach out to opposition members to get their vote else he won’t have the numbers. In addition, at least half of the state governments need to pass the bill. That is why the states’ support is crucial.
2. If the bill clears the Rajya Sabha, it will be the country’s biggest tax reform in years and also indicate that the Modi government has the ability to get difficult legislation passed. That might also stem the waning confidence among businesses that feel Modi has been unexpectedly slow on reforms.
3. To make sure the GST is implemented across India, state and central governments will need to build necessary infrastructure, such as fully computerised commercial tax departments, and a nationwide IT network, to monitor and collect the new tax. If the bill passes both houses, it will still take another year if not more for the required infrastructure – such as a unified nationwide IT system and computerised commercial tax departments – to be in place. That’s why Jaitley has set a target of 2016 for it to come into effect.
4. Work on the infrastructure upgrades began two years ago, but not all states were on board fearing revenue losses and loss of discretionary fiscal authority. For example, Maharashtra, earns more than 13,000 crore annually from octroi, and Haryana earns more than 2,000 crore from purchase tax. These and other states will lose revenue from such levies under GST and have demanded compensation from the central government.
5. Finance Minister Jaitley reached out to all states to get their support before the bill was cleared. He offered to compensate the states for any loss of revenues for first five years following the implementation of GST. States will receive Rs.11,000 crore this fiscal towards partial compensation of the losses suffered by them.
6. The existing, heavily bureaucratic structure of taxes levied by the central and state governments such as excise duty, octroi, central sales tax, and value-added tax will be replaced by a single GST structure. Businesses will find it much easier to operate and expand. Implementation of GST could boost economic growth by 1 to 2 percentage points, according to estimates by the Confederation of Indian Industry.
7. E-commerce firms have run into issues with regulatory authorities, such as Amazon’s case in Karnataka. The GST is expected to plug gaps in tax laws and resolve such problems.
CHAPTER – I – Introduction – (Report of Task Force on Implementation of GST)
CHAPTER – I – Introduction – (Report of Task Force on Implementation of GST)
Date – 12/30/2009
CHAPTER – I
1.1 In 2004, analysing the structure of the prevailing indirect tax system both at the Central and State level, the Task Force on Implementation of the Fiscal Responsibility and Budget Management Act, 2003 observed that “high import tariffs, excises and turnover tax on domestic goods and services have enormous cascading effects, leading to a distorted structure of production, consumption and exports. This problem can be effectively addressed by shifting the tax burden from production and trade to final consumption, and from savings to consumption. The existing tax system introduces innumerable distortions resulti…
With heterogeneous State laws on VAT, the debate on the necessity for a GST has been reignited. The best GST systems across the world use a single GST while India has opted for a dual-GST model. Critics claim that CGST, SGST and IGST are nothing but new names for Central Excise/Service Tax, VAT and CST and hence GST brings nothing new to the table. The concept of value-add has never been utilised in the levy of service as the Delhi High Court is attempting to prove in the case of Home Solution Retail while under Central Excise the focus is on defining and refining the definition of manufacture instead of focusing on value additions. The Revenue can be very stubborn when it comes to refunds as the Maharashtra Government proves and software entities that applied for refunds on excess service tax paid on inputs discovered.
2.2 With a view to attaining the objectives set out above, we recommend a VAT type Goods and Services Tax (GST). In the context of the design of the GST, some of the important issues are discussed in the following paragraphs.
a. Single GST versus Dual GST
2.3 In a federal country like India where the power to tax domestic trade is divided between the Central Government and the State Government, the designing of a destination based GST becomes extremely complicated. A conventional national GST8 cannot be implemented without the States losing their fiscal autonomy. However, this is not feasible since revenues from State VAT account for substantial proportion of State’s revenues. Therefore, the solution has to be found within the existing federal framework where both levels of Governments have the concurrent powers to tax domestic trade in goods and services.
8 This refers to a single National level GST to be levied and collected by the Central Government.
2.4 In view of the above, we recommend the following:-
(a) The GST will be a dual levy imposed concurrently by the Centre and the States, but independently. It will have two components: one levied by the Centre (hereinafter referred to as CGST), and the other levied by the States and Union Territories (UTs) [hereinafter referred to as SGST].
(b) Both the CGST and SGST will operate over a common base. That is, the base will be identical.
CHAPTER – II – Goods and Services Tax: The Model – (Report of Task Force on Implement
CHAPTER – II – Goods and Services Tax: The Model – (Report of Task Force on Implementation of GST)
Date – 12/30/2009
Goods and Services Tax: The Model
2.1 In the absence of a firm Model of the GST, it is necessary for us to construct a comprehensive Model in the light of the roadmap prepared by EC, the views expressed by the Central Government, the ongoing discussion on unresolved issues and best international practice. Therefore, the Group seeks to design the Model in such manner as would foster the achievement of the following objectives:
(a) The incidence of tax falls only on domestic consumption;
(b) The efficiency and equity of the system is optimized;
(c) There should be no export of taxes across taxing jurisdictions;
(d) The Indian market should be integrated into a single common market;
(e) It enhances the cause of cooperative federalism.
Govt tables GST Bill in Lok Sabha
Emphasizing that he wanted the bill to be debated so that suggestions can be taken into account, the finance minister said he had achieved a “near consensus” with the empowered committee (EC) of state finance ministers on GST in a meeting here.
“This is not a partisan legislation. We will ensure that the interest of every state is taken care of, that no state will lose a rupee of revenue,” Jaitley said.
The previous United Progressive Alliance (UPA) government had in 2011 introduced a Constitution Amendment Bill in the Lok Sabha towards the introduction of the GST. States sought a five-year compensation package and asked for its inclusion in the bill.
Jaitley told the house that the states will receive Rs 11,000 crore this fiscal towards partial compensation of the losses suffered by them for reduction in central sales tax (CST).
While the CST is levied by the Centre on interstate movement of goods and collected by states, the issue of compensation arose because the central government cut the CST from 4 per cent to 2 per cent in phases, after state-level VAT was introduced from April 1, 2005.
The Cabinet committee on economic affairs Wednesday approved the Goods and Services Tax (GST) Bill paving the way for its tabling.
Earlier, finance ministers of seven states in a meeting here Thursday rejected the draft Goods and Services Tax (GST) Bill, saying that it does not address their concerns on the issues of compensation, entry tax, and the tax on petroleum products.
States also want petroleum, alcohol and tobacco to be kept out of the purview of the GST.
Seen as a key to facilitating industrial growth and improving the business climate in the country, the GST bill needs to be passed by a two-thirds majority in both houses of parliament and by the legislatures of half of the 29 states to become law.
By subsuming most indirect taxes levied by the central and state governments such as excise duty, service tax, VAT and sales tax, GST proposes to facilitate a common market across the country, leading to economies of scale and reducing inflation through an efficient supply chain.
Full implementation of GST could lift India’s gross domestic product (GDP) growth by 0.9-1.7 percentage points, according to a study by the National Council of Applied Economic Research (NCAER).
Recent Messages (46)
Narendra Modi’s GST U-turn set to make India single market for first time After opposing GST during his 12 years running Gujarat, Modi now plans to enact the idea within eight months मोदिमामा करून करून भागले अन देव पूजेला लागले Self-serving person may show change in various ways. One being, righteous-appearing rogue. …and I am Sid Harth
GST Bill: The Devil’s in the Details December 19, 2014 / elcidharth sidileakdorcomma/ ?p=8278 …and I am Sid Harth