Government aims to roll out GST from 1st July, 2017
What is GST?
- GST is one indirect tax for the whole nation, which will make India one unified common market.
- GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer.
- Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage.
- The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
Constitutional 122nd Amendment Bill is passed by Rajya Sabha. It will enter into the statute book as The Constitution (101st Amendment) Bill, 2016. Almost all states are onboard now.
What are the benefits of GST?
For business and industry
- Easy compliance: A robust and comprehensive IT system would be the foundation of the GST regime in India. Therefore, all tax payer services such as registrations, returns, payments, etc. would be available to the taxpayers online, which would make compliance easy and transparent.
- Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are common across the country, thereby increasing certainty and ease of doing business. In other words, GST would make doing business in the country tax neutral, irrespective of the choice of place of doing business.
- Removal of cascading: A system of seamless tax-credits throughout the value-chain, and across boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce hidden costs of doing business.
- Improved competitiveness: Reduction in transaction costs of doing business would eventually lead to an improved competitiveness for the trade and industry.
- Gain to manufacturers and exporters: The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost.
For Central and State Governments
- Simple and easy to administer: Multiple indirect taxes at the Central and State levels are being replaced by GST. Backed with a robust end-to-end IT system, GST would be simpler and easier to administer than all other indirect taxes of the Centre and State levied so far.
- Better controls on leakage: GST will result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of GST that would incentivize tax compliance by traders.
- Higher revenue efficiency: GST is expected to decrease the cost of collection of tax revenues of the Government, and will therefore, lead to higher revenue efficiency.
For the consumer
- Single and transparent tax proportionate to the value of goods and services: Due to multiple indirect taxes being levied by the Centre and State, with incomplete or no input tax credits available at progressive stages of value addition, the cost of most goods and services in the country today are laden with many hidden taxes. Under GST, there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer.
- Relief in overall tax burden: Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit consumers.
Which taxes at the Centre and State level are being subsumed into GST?
At the Central level, the following taxes are being subsumed:
- Central Excise Duty,
- Additional Excise Duty,
- Service Tax,
- Additional Customs Duty commonly known as Countervailing Duty, and
- Special Additional Duty of Customs.
At the State level, the following taxes are being subsumed:
- Subsuming of State Value Added Tax/Sales Tax,
- Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States),
- Octroi and Entry tax,
- Purchase Tax,
- Luxury tax, and
- Taxes on lottery, betting and gambling.
How would GST be administered in India?
Keeping in mind the federal structure of India, there will be two components of GST – Central GST (CGST) and State GST (SGST). Both Centre and States will simultaneously levy GST across the value chain. Tax will be levied on every supply of goods and services. Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State. The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output. No cross utilization of credit would be permitted.
How will imports be taxed under GST?
The Additional Duty of Excise or CVD and the Special Additional Duty or SAD presently being levied on imports will be subsumed under GST. As per explanation to clause (1) of article 269A of the Constitution, IGST will be levied on all imports into the territory of India. Unlike in the present regime, the States where imported goods are consumed will now gain their share from this IGST paid on imported goods.
What are the major features of the Constitution (122nd Amendment) Bill, 2014?
The salient features of the Bill are as follows:
- Conferring simultaneous power upon Parliament and the State Legislatures to make laws governing goods and services tax;
- Subsuming of various Central indirect taxes and levies such as Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty commonly known as Countervailing Duty, and Special Additional Duty of Customs;
- Subsuming of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, and Taxes on lottery, betting and gambling;
- Dispensing with the concept of ‘declared goods of special importance’ under the Constitution;
- Levy of Integrated Goods and Services Tax on inter-State transactions of goods and services;
- GST to be levied on all goods and services, except alcoholic liquor for human consumption. Petroleum and petroleum products shall be subject to the levy of GST on a later date notified on the recommendation of the Goods and Services Tax Council;
- Compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period of five years;
- Creation of Goods and Services Tax Council to examine issues relating to goods and services tax and make recommendations to the Union and the States on parameters like rates, taxes, cesses and surcharges to be subsumed, exemption list and threshold limits, Model GST laws, etc. The Council shall function under the Chairmanship of the Union Finance Minister and will have all the State Governments as Members.
How GST is different?
- GST is essentially a tax only on value addition at each stage i.e. credits of input taxes paid at each stage will be available in the subsequent stage of value addition.
- Thus, the final consumer will bear only the GST in the supply chain charged by the last dealer with set-off benefits at all the previous stages.
What is GST Council?
A council will be set up to recommend rates of tax, period of levy of additional tax, principles of supply, special provisions to certain states etc. The GST Council will consist of the Union finance minister, Union minister of state for revenue, and state finance ministers.
What are the objectives of this reform?
- GST system seeks to create a uniform tax system across the country, which will be less complex and more business friendly. This will also help in smooth inter-state trade.
- It seeks to remove the cascading effects of taxes.
- It will increase the tax revenue for the government, because of increased tax base, better compliance and less exemptions. Hence will contribute around 2% to GDP.
- Since, the producer will pay less taxes, will lead to decrease in prices of goods and services.
Factual information about GST negotiations:
- The first meeting of Goods & Services Tax (GST) Council has decided to exempt businesses with annual turnover below Rs.20 lakh out of the GST net
- Exemption Issue: Threshold for exemption for businesses in North-eastern and hill states will be for annual turnover below Rs.10 lakh and rest of India it will below Rs.20 lakh.
- The North-eastern and hill states have been accorded special status by the Constitutional Amendment paving the way for the GST.
- Administrative Control Issue: Consensus was reached on the contentious issue of administrative control over indirect tax assesses.
- States will have sole jurisdiction over assesses having a turnover of Rs.1.5 crore or less. In case turnover exceeding that limit, the administrative control will be jointly with the central and state governments.
- The existing 11 lakh service tax assesses will continue to be under the jurisdiction of the Centre.
- Revenue officials in the States will be trained for assessing assesses in the services sector as GST allows states to also tax services.
- Compensation formula: The compensation that Central Government will pay to states for losses of revenue because of the transition to GST regime will be routinely, quarterly or bi-monthly.
- Base Year: The GST Council also agreed to settle 2015-16 as the base year for calculating the compensation.
- The tax rates under GST regime will be based on the recommendation GST Council. Council has two-thirds voting by States and one-third by Centre.
- The GST laws passed by Parliament will not apply to Jammu and Kashmir, as it will have to legislate its own law and integrate with the GST regime.
- There will be no single rate under GST as it will be not possible and it will be highly regressive. So The GST Council has recommended a four-tier tax structure 5, 12, 18 and 28%.
- On top of the highest slab (28%), a cess will be imposed on luxury and demerit goods to compensate the states for revenue loss for five years.
- Essential food articles will not taxed and those will continue to be zero rated under the GST. All other commodities will be fitted into the nearest tax bracket.
In the light of GST and Fourteenth Finance Commission, it is said that India is seeing fiscal centralization and fiscal decentralization at the same time. Elaborate. Also examine the opportunities this situation has created. (200 Words)
GST leads to fiscal centralization because
- GST will lead to subsuming of various central and state indirect taxes within one ambit. In this context it seems as a loss of fiscal autonomy for state eg. Tamil Nadu claims to loose 20000 cr. on this account.
- The formation of GST council with the finance minister as chairman taking important decisions relating to tariff rate fixation, tax rate, threshold limits on a uniform basis disallows taking into account intra state variations.
- Similarly the abolition of central sales tax will be loss for various manufacturing heavy state like Maharashtra.
- The incorporation of petroleum and alcohol in future will deny the tax collections on these products for the state which are an imp source of revenue.
- Being a destination based taxes it unequally benefits states lagging in manufacturing on cost of more industrialized ones
- The compensation offered is centrally determined with minimum say for the states
On the other hand FFC promote decentralization because:
- 42% vertical tax devolution to states has provided for the requisite elbow room for states to implement their schemes
- Reduction in the no of CSS schemes will again help in more autonomy in expenditure for states taking into account local socio-economic conditions
- Reduction of tied funds, increase in flexi funds will lead to more optimum utilisation of money.
- Devolution of 2.8 lakh crore to PRI and recommendation of performance linked grants will incentives better governance and last mile delivery
- GST will help curb tax evasion, improve collections, increase our GDP, lower inflation, provide better revenues to govt., decrease fiscal deficit, decrease inequality among states ,provide transparency, predictability and stability.
- Compensation of states for GST coupled with FFC 42% devolution will improve finances, reduce deficit ,improve collections of states in long run and eventually benefit the common man
Therefore the need is to urgently pass GST bill for the speedy development of the nation in future.
Recent development –
- On 12 August 2016, Assam became the first state to ratify the bill, when the Assam Legislative Assembly unanimously approved it.
- Bihar was the 2nd state to pass GST
- Arunachal Pradesh Become 12th state to pass the GST
As per Article 279A (1) of the amended Constitution, the GST Council has to be constituted by the President within 60 days of the commencement of Article 279A.
As per Article 279A of the amended Constitution, the GST Council will be a joint forum of the Centre and the States. This Council shall consist of the following members namely:
a) Union Finance Minister… Chairperson
b) The Union Minister of State, in-charge of Revenue of finance… Member
c) The Minister In-charge of finance or taxation or any other Minister nominated by each State Government… Members.
As per Article 279A (4), the Council will make recommendations to the Union and the States on important issues related to GST, like the goods and services that may be subjected or exempted from GST, model GST Laws, principles that govern Place of Supply, threshold limits, GST rates including the floor rates with bands, special rates for raising additional resources during natural calamities/disasters, special provisions for certain States, etc.
Central Government has inter alia, taken the following decisions for smooth functioning of GST Council –
a. Creation of the GST Council Secretariat, with its office at New Delhi;
b. Appointment of the Secretary (Revenue) as the Ex-officio Secretary to the GST Council;
c. Inclusion of the Chairperson, Central Board of Excise and Customs (CBEC), as a permanent invitee (non-voting) to all proceedings of the GST Council;
d. Create one post of Additional Secretary to the GST Council in the GST Council Secretariat (at the level of Additional Secretary to the Government of India), and four posts of Commissioner in the GST Council Secretariat (at the level of Joint Secretary to the Government of India).
The Cabinet has also decided to provide for adequate funds for meeting the recurring and non-recurring expenses of the GST Council Secretariat, the entire cost for which shall be borne by the Central Government. The GST Council Secretariat shall be manned by officers taken on deputation from both the Central and State Governments.
While discharging the functions conferred by this article, the Goods and Services Tax Council shall be guided by the need for a harmonised structure of goods and services tax and for the development of a harmonised national market for goods and services. The Goods and Services Tax Council shall determine the procedure in the performance of its functions.
GST to herald सूचना देना a new era in federalism: RBI
The Goods and Services Tax (GST), which is likely to be introduced from July 2017, is set to usher in a new era of cooperative federalism, the Reserve Bank of India (RBI) observed in its report on State finances.
“GST is likely to set a new course for cooperative federalism in India by strengthening Centre-State partnership,” the RBI said its report.
The successful implementation of GST would help boost revenue through easier tax administration, supported by user-friendly IT systems, it said.
Tax collection costs
- “GST is expected to reduce administrative costs for collection of tax revenue and improve revenue efficiency.
- Moreover, uniformity in tax rates and procedures across the country will economise on compliance cost,” it said.
- The RBI also noted that the 25 States, whose data was available, had suffered fiscal slippage in 2016-17, though they had budgeted for an improvement in the period.
- “Relaxations in market borrowings provided by the Fourteenth Finance Commission have allowed many of the States to mobilise additional resources,” it said.
- However, the overall fiscal position was found to be sustainable in the long run, according to the RBI.
- “Based on information pertaining to 25 States, the consolidated gross fiscal deficit to gross State domestic product ratio is budgeted to moderate to 2.6% in 2017-18.”
- France is the first country to implement the GST in 1954
- Germany, Italy, the UK, South Korea, Japan, Canada and Australia have been among the over a dozen nations which have implemented the GST
- China implemented GST in 1994 while Russia did it in 1991. Saudi Arabia plans to do it in 2018
- GST creating India as one market with one tax rate.
- 80-90 per cent of the items have been fitted in 5, 12, 18 or 28 per cent brackets.