What is the Goods and Services Tax ?
Highlights of the GST Bill
1. The Bill amends the Constitution to introduce the goods and services tax (GST).
2. Parliament and state legislatures will have concurrent powers to make laws on GST. Only the centre may levy an integrated GST (IGST) on the interstate supply of goods and services, and imports.
3. Alcohol for human consumption has been exempted from the purview of GST. GST will apply to five petroleum products at a later date.
4. The GST Council will 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.
5. The Bill empowers the centre to impose an additional tax of up to 1%, on the inter-state supply of goods for two years or more. This tax will accrue to states from where the supply originates.
6. Parliament may, by law, provide compensation to states for any loss of revenue from the introduction of GST, up to a five year period.
1. An ideal GST regime intends to create a harmonised system of taxation by subsuming all indirect taxes under one tax. It seeks to address challenges with the current indirect tax regime by broadening the tax base, eliminating cascading of taxes, increasing compliance, and reducing economic distortions caused by inter-state variations in taxes.
2. The provisions of this Bill do not fully conform to an ideal GST regime. Deferring the levy of GST on five petroleum products could lead to cascading of taxes.
3. The additional 1% tax levied on goods that are transported across states dilutes the objective of creating a harmonised national market for goods and services. Inter-state trade of a good would be more expensive than intra-state trade, with the burden being borne by retail consumers. Further, cascading of taxes will continue.
4. The Bill permits the centre to levy and collect GST in the course of inter-state trade and commerce. Instead, some experts have recommended a modified bank model for inter-state transactions to ease tax compliance and administrative burden.
As the name suggests, it is a tax levied when a consumer buys a good or service. It is meant to be a single, comprehensive tax that will subsume all the other smaller indirect taxes on consumption like service tax, etc. This is how it is done in most developed countries.
What is preventing GST from being a reality ?
A major change like GST requires a constitutional amendment, which requires a bill to passed in both houses of Parliament. The GST constitutional amendment bill was passed in the Lok Sabha in May this year.
It has been held up in the Rajya Sabha due to objections being raised by the Opposition regarding the Bill as well as issues with no direct connection to GST.
The Bill was also placed before a Rajya Sabha select committee, which made its recommendations regarding changes to the Bill. The Cabinet cleared these changes in July.
What are the Opposition’s objections ?
The Congress wants a provision capping the GST rate at 18 per cent to be added to the Bill itself.
It also wants to scrap the proposed 1 per cent additional levy (over and above the GST) for manufacturing states.
This levy was demanded by manufacturing states who argued that they needed to be compensated for the investment they had made in improving their manufacturing capabilities. The Centre had agreed to this demand to encourage the states to support the GST Bill.
The third demand by the Congress was to change the composition of the GST council—the body that decides the various nitty-gritty’s like rates of tax, period of levy of additional tax, principles of supply, special provisions to certain states, etc.
The proposed composition is for the Council to be two-thirds comprised from states and one-third from the Centre.
The Congress wants the Centre’s share to be reduced to one-fourth.
This demand, however, was rejected by even the Rajya Sabha Standing Committee.
Ten things to know about the GST Bill
1. Officially, the Constitution (One Hundred and Twenty-Second Amendment) Bill 2014.
2. It was introduced in the Lok Sabha on December 19, 2014 by Finance Minister Arun Jaitley.
3. The Bill seeks to amend the Constitution to introduce a goods and services tax (GST) which will subsumes various Central indirect taxes, including the Central Excise Duty, Countervailing Duty, Service Tax, etc. It also subsumes State value added tax (VAT), octroi and entry tax, luxury tax, etc.
4. The Bill inserts a new Article in the Constitution make legislation on the taxation of goods and services a concurrent power of the Centre and the States.
5. The Bill seeks to shift the restriction on States for taxing the sale or purchase of goods to the supply of goods or services.
6. The Bill seeks to establish a GST Council tasked with optimising tax collection for goods and services by the State and Centre. The Council will consist of the Union Finance Minister (as Chairman), the Union Minister of State in charge of revenue or Finance, and the Minister in charge of Finance or Taxation or any other, nominated by each State government.
7. The GST Council will be the body that decides which taxes levied by the Centre, States and local bodies will go into the GST; which goods and services will be subjected to GST; and the basis and the rates at which GST will be applied.
8. Under the Bill, alcoholic liquor for human consumption is exempted from GST. Also, it will be up to the GST Council to decide when GST would be levied on various categories of fuel, including crude oil and petrol.
9. The Centre will levy an additional one per cent tax on the supply of goods in the course of inter-State trade, which will go to the States for two years or till when the GST Council decides.
10. Parliament can decide on compensating States for up to a five-year period if States incur losses by implementation of GST.
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