The Constitution (122nd Amendment) (GST) Bill, 2014
Highlights of the Bill
- The Bill amends the Constitution to introduce the goods and services tax (GST).
- 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.
- Alcohol for human consumption has been exempted from the purview of GST. GST will apply to five petroleum products at a later date.
- 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.
- 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.
- Parliament may, by law, provide compensation to states for any loss of revenue from the introduction of GST, up to a five year period.
Key Issues and Analysis
- 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.
- 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.
- 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.
- 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.
The industry is hopeful that the ongoing Winter Session would conclude with the passage of the bill in the Rajya Sabha, as it has already been approved by the Lok Sabha.
what is GST ?
The GST is a tax which is levied on the consumption of goods and services at a uniform rate. The Constitution empowers both the Central and state governments to levy taxes on varying transactions. Customs duties, central excise duty, service tax is levied by the Central government, while the state governments levy VAT (value added tax), entry tax, octroi, entertainment tax etc.
- Due to inconsistency of definitions, taxable event, classification and interpretational differences under several indirect tax laws, there are multiple issues within the current indirect tax environment. For example, certain transactions are taxed as a “sale” as well as a “service”.
- Credit is not available across indirect taxes which results in tax-on-tax, also known as “cascading”. There are numerous compliances that need to be fulfilled under several indirect tax regimes which create challenges to businesses. The GST offers an opportunity to mitigate many ills existing in the current tax environment and therefore is necessary.
- As India has a federal setup, the GST structure that is being proposed is unique. It is revolutionary as it involves both the Central and state governments to be empowered to levy and administer taxes on the same taxable event which would be the “supply” of all goods and services.
- The dual GST model that is being planned will include every transaction, whether goods or services, and shall have a central GST component as well as a state GST component. The GST proposed would shift the tax base from production to consumption, making it a destination-based tax.
- The biggest benefit is that multiple taxes will no longer remain. This means that taxes like excise duty, service tax, central sales tax, state VAT, entry tax etc, will all be subsumed within GST. Businesses thus will not have to deal with multiple taxes and tax authorities. To sum up, the GST regime is expected to lead the transition from the existing “complex” tax system to a relatively “simpler and unified” one.
- The proposed system would be fully-automated and administered through a common portal requiring minimal interface between the tax payers and the authorities. This may be an area of considerable administrative and compliance cost saving for businesses.
- In addition, incidence of indirect taxes on businesses and end consumers is expected to reduce in the long term as input taxes paid at each level should be eligible for credit, which would have opportunities to reduce the existing prices of goods and services (that currently have components of non-creditable input taxes). However, it is important to note that a fully-automated environment will require smaller traders/businesses to also migrate to an I-T system of tax compliance.
- The study estimates that the introduction of the GST would enhance the country’s GDP by 0.9 per cent to 1.7 per cent in the medium term.It is anticipated that GST will bring economic development, growth in exports, moderation in taxes, stability in prices and more.
- It is also expected to encourage voluntary compliance which would urge sectors currently under parallel economy to become part of the mainstream economy.
- Transparent taxation system, reduces the number of indirect taxes
- Customers will know exactly how much tax they are paying on the product they buy or services they use
- Cost of doing business to be lower
- Will help export become more competitive
- Tax burden will be divided equally between manufacturing and services
- Will help increase tax base and reduce exemptions
- Multiple taxes like octroi, central sales tax, state sales tax, entry tax, licence fees, turnover tax will go
HOW IT HELPS FOR MANUFACTURING SECTOR :
- With the elimination of tax cascading, it appears that GST would be one of the factors that could improve the performance of the manufacturing sector.
- Further, the simplification of processes and the indirect tax regime could improve India’s ‘ease of doing business’ rankings.
- Considering the growth potential with the introduction of GST, the delay has been damaging, both for the economy as well as India’s image.
- Under GST, there is Central GST, State GST and Inter-Staet GST. These are nothing but new names for Central Excise/Service Tax, VAT and CST
- Will neither reduce tax base nor increase it.
At a time when there is a dispute between producing and consuming states over GST,
How a win-win situation can be achieved?
Has the NDA government diluted/changed the GST bill as alleged by the Congress?
- Studies by economists have unanimously recommended a GST system over multi-level indirect tax structure. Notwithstanding the economic advantages and benefits, arriving at a consensus between political parties on the legislative initiatives required to introduce GST has been a difficult task.
- At present, the GST bill is pending approval of the Rajya Sabha on the ground that considerable changes have been carried out in the original GST bill introduced in 2011.
- Comparing the GST bill of in 2011 with the one introduced in 2014, it appears that the key points raised by the Opposition are provisions relating to levy of 1 per cent additional tax on inter-state supply of goods to compensate manufacturing states like Tamil Nadu, Maharashtra, Gujarat etc.
- Overall, the GST bill introduced in 2014 has maintained the objectives with which the GST structure of indirect taxes was proposed for India. While it is true that the proposed 1 per cent additional tax on inter-state supplies does bring in inconsistencies, it is hoped that the legislators will be able to find a solution.
WHY IS CONGRESS OPPOISING?
- Wants scrapping of proposal of 1% additional levy for manufacturing states
- Wants composition of GST Council (which decides nitty-gritties) be changed; Wants 2/3 from states and 1/3 from Centre
WHAT IS HOLDING UP THIS NEW SYSTEM?
- Needs constitutional amendment, means support of all virtually parties in both Houses of Parliament; Bill passed in Lok Sabh in May, this year
- Bill will have to go back to LS if RS makes any changes in it
- with ruling NDA not in majority in Rajya Sabha, support of all other parties, especially Congress, is crucial