1. The Reason to bring GST into the present Tax regime: Cascading Effect (Taxes over Taxes):
Cascading effect of taxes is one of the major distortions of the Indian taxation regime. Federal structure of our democracy, allows both states and center to levy taxes separately and this has caused this cascading effect. While Income tax, Excise duty, Service tax and Central Sales tax (CST), Securities Transaction tax is levied by the center; VAT/sales tax, Entry tax, State excise, Property tax, Agriculture tax and octroi is charged by the State governments. There are many possible transactions which come under the ambit of two or more of these taxes and the value of the second tax is calculated on the value arrived at by adding the value of first tax to the value of transaction. For example, inter-state purchase of goods would attract both Central Service tax and Sales tax and manufacturing and sell would be liable to Cenvat over and above CST.
B. WHAT IS GST:
GST is an indirect tax on goods and services which would be charged on every point of sale in the supply chain and every entrant in the supply-chain would be eligible for input credit of tax which it had paid to the previous entrant for the procurement of goods and services. The sellers or service providers collect the tax from their customer, who may or may not be the ultimate customer, and before depositing the same to the exchequer, they deduct the tax they have already paid. So, the manufacturer will get the input credit of all the taxes paid by them on the raw materials and also on the services.
C. GST BILL, 2014 (The Constitution 122nd Bill):
1. Salient Features of the Bill:
a. Article 246A which confers simultaneous power to the Union and the State legislatures has been inserted.
b. Article 279A which will allow for the creation of a GST Council, which will be a joint forum of the Centre and the States has been inserted. This Council would function under the Chairmanship of the Union Finance Minister. 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.
c. Central Taxes like Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty (CVD) and Special Additional Duty of Customs (SAD), etc. will be subsumed in GST.
d. At the State level, Taxes like VAT/ Sales Tax, Central Sales Tax, Entertainment Tax, Octroi and Entry Tax, Purchase Tax and Luxury Tax, etc. would be subsumed in GST.
e. The Centre will compensate States for loss of revenue arising on account of implementation of the GST for a period up to five years (The compensation will be on a tapering basis, i.e., 100% for first three years, 75% in the fourth year and 50% in the fifth year).
f. All Goods and services, except alcoholic liquor for human consumption, will be brought under the purview of GST. However, it has also been provided that petroleum and petroleum products shall not be subject to the levy of GST till notified at a future date on the recommendation of the GST Council. The present taxes levied by the States and the Centre on petroleum and petroleum products, i.e., Sales Tax/VAT, CST and Excise duty only, will continue to be levied in the interim period.
2. Scope of GST:
All goods and services are covered under GST Regime except Alcoholic liquor for Human Consumption;
Tobacco Products subject to levy of GST and Centre may also levy excise duty;
GST Council yet to decide the incidence and levy of GST on following:
- High Speed Diesel (HSD)
- Motor Spirit (Petrol)
- Natural Gas
- Aviation Turbine Fuel
- Crude Petroleum
3. Levy of GST:
Both, Parliament and state legislatures will have the power to make laws on the taxation of goods and services. A law made by Parliament in relation to GST will not override a state law on GST. The central government will have the exclusive power to levy and collect GST in the course of interstate trade or commerce, or imports. This will be known as Integrated GST (IGST). A central law will prescribe the manner in which the IGST will be shared between the centre and states, based on the recommendations of the GST Council. Additional tax on supply of goods an additional tax of up to 1% on the supply of goods will be levied by centre in the course of inter-state trade or commerce. The tax will be collected by the centre and directly assigned to the states from where the supply originates. The Constitution (122nd Amendment) Bill, 2014 (GST) PRS Legislative Research July 21, 2015 – 3 – This tax will be levied for two years, or for a longer period as recommended by the GST Council. The central government may exempt certain goods from such additional tax. The principles for determining the place of origin from where the supply of such goods takes place will be formulated by a law of Parliament.
4. GST Council:
The GST Council will consist of: (a) the Union Finance Minister (as Chairman), (b) the Union Minister of State in charge of Revenue or Finance, and (c) the Minister in charge of Finance or Taxation or any other Minister, nominated by each state government. All decisions of the GST Council will be made by three fourth majority of the votes cast; the centre shall have one-third of the votes cast, and the states together shall have two-third of the votes cast.
The GST Council will make recommendations on:
- taxes, cesses, and surcharges to be subsumed under the GST;
- goods and services which may be subject to, or exempt from GST;
- the threshold limit of turnover for application of GST;
- rates of GST;
- model GST laws, principles of levy, apportionment of IGST and principles related to place of supply;
- special provisions with respect to the eight north eastern states, Himachal Pradesh, Jammu and Kashmir, and Uttarakhand; and (g) related matters.
The GST Council may decide the mechanism for resolving disputes arising out of its recommendations. Compensation to states Parliament may, by law, provide for compensation to states for revenue losses arising out of the implementation of GST, based on the recommendations of the GST Council. Such compensation could be for a maximum of five years.
Overall, the introduction of the Bill is a positive step towards the implementation of GST in India. GST is expected to rationalize the indirect taxes in India by reducing the cascading effect, effective tax rates, simplification of procedures, and increase revenue for the centre and the States. At this point, one can only hope that GST lives up to its expectations.