This article would focus on Goods and Services Tax (GST), as we know discussion on GST bill is going on in winter session of Parliament. So, let’s just take this in brief here.

gst-head-for-blog


What is the Goods and Services Tax (GST)?

  • As the name suggests, the GST will be levied both on goods (manufacturing) and services.
  • 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.

Let’s know the structure of GST

  • It would have a dual structure, a Central component levied and collected by the Centre and a state component administered by states.
  • At the Central level, it will subsume Central excise duty, service tax and additional customs duties.
  • At the state level, it will include value-added tax(VAT), entertainment tax, luxury tax, lottery taxes and electricity duty.
  • 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).
  • Tobacco and tobacco products will be subject to GST. The centre may also impose excise duty on tobacco.

Which products are exempted from the purview of GST ?

  • Alcohol for human consumption has been exempted.

Initially, GST will not apply to:

  • Petroleum crude
  • High speed diesel
  • Motor spirit (petrol)
  • Natural gas
  • Aviation turbine fuel(ATF)

The GST Council will decide when GST will be levied on them.

What is the scope of GST Council?

The GST Council will consist of –

  • Union Finance Minister (as Chairman)
  • Union Minister of State in charge of Revenue or Finance.
  • Minister in charge of Finance or any other Minister, nominated by each state government.

 

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; (d) rates of GST
  • Model GST laws, principles of levy, apportionment of IGST and principles related to place of supply.

The GST Council may decide the mechanism for resolving disputes arising out of its recommendations.

What are the advantages of GST?

  • It speeds up economic growth of India, as it will add about 1% to India’s GDP growth.
  • Replacing the cascading effect created by existing indirect taxes.
  • Uniformity in tax regime with only one or two tax rates across the supply chain as against multiple tax structure as of present.
  • Improvement in cost competitiveness of goods and services in the international market.

Why 1 per cent Additional tax on supply of goods should not be there?

  • It will be levied by centre in the course of inter-state trade or commerce, this provision impedes a key objective of GST.
  • The GST regime aims to create a harmonised national market for goods and services, and the GST Bill reinforces this objective.
  • The levy of the additional tax distorts the creation of a national market, as a product made in one state and sold in another would be more expensive than one made and sold within the same state.
  • Also, the 1% tax will result in cascading of taxes.
  • This effect will be magnified if the production and distribution chain passes through several states, and if the 1% additional tax applies at each state.
  • The burden of the cascading tax will be borne by the final consumer of the product.

Let’s look at the highlights of Constitution (122nd Amendment), GST Bill, 2014

  • 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.
  • 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.

What is preventing GST from being a reality?

  • The GST constitutional amendment bill was passed in the Lok Sabha in May 2015.
  • 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.

What are the Objections from Opposition?

  • 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 for manufacturing states.
  • The third demand by the Congress was to change the composition of the GST council.
  • 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.

Time to ponder on a few Questions! Some of these may make into Mains 2015!

#1. Will GST really make a breakthrough for economic growth in India? Discuss.

#2. Considering ongoing debate on the introduction of GST bill in Rajya Sabha, critically comment on the important features of the bill.

#3. Critically analyse the structure, objectives and issues arising out of of the Goods and Services Tax system that the government wants to introduce in India?

What do you think on it, Let’s know us!


 

Published with inputs from Arun

Any doubts?


  1. Profile photo of RAJESH SINGH KHARWAR RAJESH SINGH KHARWAR

    do u have any matter concerned to economic optional

  2. Profile photo of Attitude Tally Academy Attitude Tally Academy

    Hello Admin!
    Such a great and informative post indeed about GST, I really appreciate it!
    Keep updating stuffs like this.

    Manager:
    http://www.attitudetallyacademy.com/

  3. Profile photo of Gautam Gunjan Gautam Gunjan

    please provide the detail that what are its negative impacts on the indian economy and citizens?

  4. Profile photo of Root Root

    A historic day in making – GST bill set to pass in RS

  5. Profile photo of Ankit Agarwal Ankit Agarwal

    Can someone also please explain in detail that how is GST a destination based tax? Please give an example of say cotton being made into a shirt that from wholeseller market to retail market with transition among states also.

    Further, please also given an example oh how a service will be taxed let say a transportation service provider across states?

    1. Profile photo of Rohit Pande Rohit Pande

      I digged a very old article from Eco Times which can help in understanding the concept –

      Destination principle provides for shifting the burden of taxation on goods and services to the point of their final consumption destination. A pure and perfect example of consumption taxation on the basis of this principle is the retail sales tax system as prevalent in the US. The entire chain of value addition activities preceding retail transactions is not subjected to tax in the US.

      http://articles.economictimes.indiatimes.com/2009-12-22/news/27634842_1_committee-of-state-finance-sgst-cgst

      1. Profile photo of Victores Dares Victores Dares

        Thank you

  6. Profile photo of Ankit Agarwal Ankit Agarwal

    Can you please tell me which article of the constitution does GST constitutional amendment bill seek to amend?

    1. Profile photo of Veena Adwani Veena Adwani

      246A I MN

  7. Profile photo of Sajina Ban Sajina Ban

    I think this is the introduction of 1 country 1 tax 1 road.

  8. Profile photo of Aditya Kalia Aditya Kalia

    Additional taxes defeat the whole purpose of having one unified tax regime. There is no point is saying that we have one country one tax system when there are special taxes like this one.

    1. Profile photo of Arun Muradnar Arun Muradnar

      Indeed,It will be major concern for non-manufacturing states specially dependent on agri and other service-led..It will be a cascading effect for GST as already unified structure at destination will benefit to all..and compensation for 5 yrs set..then 1% additional tax would be reconsider.

    2. Profile photo of Rohit Pande Rohit Pande

      But this one is temp. no? What’s the status on the bill passage by the way? Are all the states in?

      1. Profile photo of Aditya Kalia Aditya Kalia

        Yes, this is for 2 years.
        Analysts give following arguments in favor of scrapping this 1% proposal:
        1. Centre is already ready to compensate states for complete revenue losses,if any, in first 3 years, 75% in 4th and 50% in 5th year.
        2. The Finance Commission should take care of revenue loss for a state on account of GST and accordingly allocate revenues for them.

        If the above two points are considered, there is no need for any additional taxes which will decrease the efficiency and utility of a single tax regime.

        Regarding the status of bill, it will be a major task for NDA to get it passed by RS in the coming session. Most of the states are onboard. Tamil Nadu is the one that is not completely onboard beacause majority of the state revenue comes from oil manufacturing and GST being a destination based tax system will result in a revenue loss for TN.

  9. Profile photo of gurshinder sidhu gurshinder sidhu

    Why is 1% additional for manufacturing states causing so much fuss

Post-GST, heavy sacks and small change

Related image

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Note4students

Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Prelims level: GST

Mains level: GST impact on different sectors


News

Context:

  • Article discusses the negative impact of GST in environment.

How GST affects environment?

  • Goods and Services Tax (GST) is making adverse consequences for the environment.
  • With the tax rate on recycled plastic shooting up from 5.5% to 18% post-GST, ragpicking as a livelihood is turning unviable.
  • After GST came in, the 18% tax on waste plastic has sparked a downward spiral in prices in the recycling markets.
  • Ragpickers encounter a steep fall in earnings as recyclers protect margins, pay less for plastic waste.
  • Plastic recyclers, faced with the new tax, are protecting their margins by slashing prices at which they buy from thousands of waste managers and ragpickers.
  • As an informal sector, not many have Taxpayer Identification Numbers. Taxes paid by the recyclers are recovered from them
  • Sudden introduction of confusing taxes” has resulted in reduced purchases of waste

[op-ed snap] Taxing times for the States

Note4students

Mains Paper 3: Economy | Mobilization of resources

Q.) “The withering of the States’ fiscal independence under GST strikes at the core of federalism.” Comment.

From UPSC perspective, following thing are important:

Prelims level: Particulars of the GST Council

Mains level: The article explains some confusions regarding the powers of the GST Council

News

Context

  1. The article is about the GST Council

Constitutional scheme regarding Taxation

  1. The Central government was given the power to tax income other than agricultural income, and levy indirect taxes in the form of customs and excise duties
  2. The State governments were given the sole power to tax the sale of goods and the entry of goods into a State
  3. Why this division: 
  4. This division of fiscal responsibility was made with a view to making States self-sufficient
  5. And with a view to supplying to regional powers the flexibility needed to govern according to the respective needs of their people

Functions of GST Council

  1. This council will recommend a number of things
    (1) the list of taxes that will be subsumed by the GST
    (2) the goods and services that will be exempt from the levy of tax
    (3) the rates at which tax shall be levied

Virtual Veto of the Union Government in the GST Council

  1. The council’s decisions will require a three-fourths majority
  2. But the Central government’s votes will have a weightage of one-third of the total votes cast
  3. This gives a virtual veto to the Union Government

Confusion regarding GST Council

  1. The newly introduced Article 279A describes Council’s decisions as “recommendations”(advisory)
  2. Due to this advisory recommendations, States can choose to ignore the council’s advice, by levying additional tax not only on the sale of goods but also on services and manufacturing
  3. On the other hand, if these recommendations are treated as obligatory, we are left with a situation where States would have altogether surrendered their fiscal autonomy to the Central government

Undue profit of over Rs 1 crore to come under GST authority’s lens

Image Source

Note4students

Mains Paper 2: Governance | Important aspects of governance, transparency and accountability, e-governance- applications, models, successes, limitations, and potential

From UPSC perspective, following thing are important:

Prelims level: Particulars of the Anti-profiteering authority

Mains level: The formation of the authority can be seen as an example of transparency that government wants for the efficient implementation of the GST


News

Anti-profiteering authority 

  1. It is a proposed authority under the new GST regime
  2. It will take up for scrutiny only those cases that have mass impact and those where undue profit of more than Rs 1 crore has been earned

More about Anti-profiteering authority 

  1. It will be a five member authority headed by a secretary-level officer
  2. Objective: It will be set up soon to keep a tab on businesses that have not passed on to consumers the benefit of lower tax rates under the GST regime

What will happen to complaints with smaller amounts?

  1. As per the three tier structure, the GST Implementation Committee (GIC) will receive complaints
  2. And those which are state specific and involving smaller amounts will be transferred to the state screening committee
  3. Other cases will be referred to the Directorate General of Safeguards who will finish investigation within 3 months and send the findings to the anti-profiteering authority

[op-ed snap] Taxing Body Parts

Image result for GST tax ON DISABLED

Image Source

Note4students

Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

This news card discusses details and flaws in the new GST tax regime. Many essential goods are charged at a high tax rate than the luxury goods. Note down the important points which you may can use in many answers and Essays.

From UPSC perspective, following thing are important:

Prelims level: GST, Products exempted and new tax bracket.

Mains level: Any updates from GST is important from mains point of view. So every aspects must be prepared.


News

Context:

  1. Author is highly critical about the new GST tax regime.
  2. Unfortunately, items of luxury, whose deprivation causes no challenges to human existence is being prioritised and charged less compared to aids and appliances that are essential items for persons with disabilities.

Flaws in the current tax bracket:

  1. The GST on aids and appliances for persons with disabilities uses such as Crutches, callipers, hearing aids, walking frames, etc. would attract a GST of 5 per cent.
  2. But the items used to embellish your body, will attract less and in some cases, no GST.
  3. Kajal, kumkum, bindi, bangles and even human hair are not taxed at all, and gold and diamonds will attract a GST of just 3 per cent.
  4. Puja samagri like rudraksha, prasadam, panchamrut, cotton wicks etc. are also exempt from GST.
  5. There is a lower slab of 0.25 per cent for items like unpolished stones.

Rationale behind this tax bracket?

  • It is to enable the domestic manufacturer to claim input tax credit for raw materials used in the manufacture of these products.

 How this tax bracket affects the disabled and other vulnerable sections?

  1.  Aids and appliances that are essential items for persons with disabilities for their daily routine, access opportunities of education or employment or enjoyment of other rights or the discharge of duties as a responsible citizen.
  2. The fact that without aids and appliances the disabled are deprived of all these and forced into a dis-empowered  state of seclusion

 Earlier tax regime

  1. Items like Braille printer, refreshable Braille display and Braille note-taker, talking watches and clocks, audio labelling devices, DAISY players are entirely imported items and did not attract any taxes earlier.
  2. There are no domestic manufacturers of these products.
  3. Raw materials like aluminium extrusions, square tubes and round tubes of aluminium used in the manufacture of artificial limbs and many rehabilitation aids were exempt from the earlier tax regime.
  4. It needs to be underlined that input tax credit is, in any case, merely a by-product of the tax channels’ unification, the weeding out of redundancy and the cascading taxes rife in the system that existed earlier.

Solution?

If the intent of the government is to protect the domestic industry, the government has to take the following concrete steps.

  1. Help Indian manufacturers build capacity by way of a technology incubator.
  2. Extend existing indigenous manufacturers’ scattered production centres into a nation-wide network of distribution, customisation and servicing.

Back2basics

GST Council

The GST Council aims to develop a harmonized national market of goods and services. The composition of the GST Council includes:

  • 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 Minister, nominated by each state government.

The 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
  • Other related matters.

From employer to employee: Gifts worth up to Rs 50K not to be under GST net

Note4students

Mains Paper 3: Economy | Growth

From UPSC perspective, following things are important:

Prelims level: GST Exemptions

Mains level: GST is a hot topic. So prepare it comprehensively covering each and every dimensions.


News:

  • Government on Monday said that gifts with value upto Rs 50,000 will not attract GST. 
  • Also, the services by an employee to the employer in the course of or in relation to his employment, neither the supply of goods or supply of services, is outside the scope of the new indirect tax regime
  • While the GST law does not define gifts, the ministry said for tax purposes gift is something that is made without consideration, is voluntary in nature and is made occasionally.

Exemption from GST

  1. The exemption includes services that are provided free of charge to all the employees by the employer such as free membership of clubs, health and fitness centres, provided appropriate GST was paid at the time of procurement by the employer
  2. Include benefits such as cars for official use, free meals and other similar amenities

Therefore GST will have to paid only in exceptional situation where gifts are given on voluntary basis, such as Diwali gifts to employees and that too if the value is more than Rs 50,000

However, ambiguity remains on whether GST is payable if a part amount is recovered from the employee for a supply which is outside the scope of GST when provided free of charge

Process eased for exporters who have not paid IGST

Note4Students:

Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

Just like demonetisation, government has been issuing clarifications and notifications regarding GST too and this proves it to be a decision taken without robust preparation.

From UPSC perspective, following things are important:

Prelims level: GST, IGST, exports-imports.

Mains level: How big reforms and decisions like GST and demonetisation should be actually implemented, consequences of less preparation and other related issues.


News:

  1. The Centre has, through a notification and a circular, eased the paperwork required to export goods without the exporter having paid the Integrated Goods and Services Tax (IGST)
  2. The notification and circular by the Government said that the IGST needs to be paid only for exports after July 1, 2017, and detail the eligibility of exporters to provide the necessary documents

What was the issue?

  1. According to the GST Rules, traders who wanted to export without paying IGST had to provide a bond or letter of undertaking (LUT) promising to pay the tax
  2. This requirement did not clarify who exactly needed to provide a bond and who was eligible to provide a LUT
  3. It also involved complexity to do with the recipient of these documents

Relief for exporters:

  1. More cash available: While exporters have the option to export on payment of IGST and subsequently claim refund of IGST paid, this would have impacted the cash flow
  2. Easy filing: The Centre allowed the bond or LUT to be submitted manually and not electronically on the GST portal

GST to boost revenue long term: Fitch

Note4students

Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, following things are important:
Prelims level: Basics of the GST
Mains level: This observation of the Fitch Rating can be quoted in support of the GST regime


News

  1. What: According to Fitch Ratings, the Goods and Services Tax (GST) is unlikely to increase Government revenue in the short-term
  2. But it will increase revenue in the long-term
  3. Also, it will have positive effect on GDP Growth

Other observations by the Fitch

  1. GST will create an ecosystem where supply chains can extend
  2. Tax filing may also become less time-consuming as a result of the new electronic system

22 States abolish check posts after GST rollout

Note4students

Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, following things are important:

Prelims level: Not Much

Mains level: It is one of the post GST, policy decisions.


News

  1. What: As many as 22 States have abolished check posts within three days of the implementation of the Goods and Services Tax (GST)
  2. Other eight States are also in the process of abolishing check posts
  3. What are check posts: State border check posts scrutinise material and location-based tax compliance
  4. Generally, check posts results in delays in delivery of goods
  5. Also, Check posts cause environment pollution as trucks queue up for clearance

GST positive for rating, to boost GDP growth: Moody’s

Note4Students:

Mains Paper 3: Economy | Mobilization of resources

Low credit ratings have been concern for India and GST might help in improving them. A big benefit of GST.

From UPSC perspective, following things are important:

Prelims level: Credit ratings, rating agencies, India’s current rating, GST.

Mains level: Benefits of GST, factors that will affect tax compliance.


News:

  1. Moody’s Investors Service has said that the implementation of GST will be positive for India’s credit rating as it will lead to higher gross domestic product (GDP) growth and increased tax revenues
  2. Over the medium term, the GST will contribute to productivity gains and higher GDP growth by improving the ease of doing business, unifying the national market and enhancing India’s attractiveness as a foreign investment destination

Current rating:

  1. Moody’s currently has a ‘Baa3’ rating on India with a positive outlook
  2. GST will support higher revenue generation for the government, through improved tax compliance and administration
  3. These two will in turn be Positive for India’s credit profile, which is constrained by a relatively low revenue base

Factors that will improve tax compliance:

  1. Incentivization of tax credits in a GST system.
  2. Greater ease of compliance through usage of a common, shared IT infrastructure between the central government and the states.
  3. A reduction in the overall cost of compliance from simplified tax rates, uniform across the country.

How will the Centre ensure States’ finances are not hurt?

Note4Students:

Mains Paper 3: Economy | Growth

GST is implemented and there are this small questions related to it that can surely form basis for a UPSC question.

From UPSC perspective, following things are important:

Prelims level: GST, compensation to states, 14th Finance Commission, difference between cess and tax

Mains level: How states will be compensated, 14th FFC suggestions.


News:

Context:

  1. The GST is a destination-based tax, and as such is viewed as being to the advantage of the consuming States and to the detriment of the producing States like Maharashtra, Tamil Nadu, Gujarat, Haryana, and Karnataka
  2. One of the key sticking points thwarting consensus in the Goods and Services Council over the course of its meetings in 2016 was the compensation the Centre would have to pay States for any losses they might incur due to the implementation of the new indirect tax regime

Objection by states:

  1. These States had raised objections to the implementation of GST, forcing the Centre to agree to a formula for compensating them in the event of a loss of revenue
  2. States demanded full compensation for five years
  3. The Centre agreed to this demand in December 2016, settling one of the most contentious issues delaying GST

What were the suggestions from Finance Commission?

  1. The 14th Finance Commission advised the Centre to provide 100% compensation to States for their revenue loss after implementation of GST for the first three years
  2. The fourth year would bring 75% compensation, and the fifth year 50% compensation

How the Centre is going to finance this compensation package?

  1. GST Council decided to impose additional cesses for five years on certain goods over and above the highest tax bracket of 28%
  2. These goods on which cess will be levied include tobacco products, coal, motor vehicles, which include all types of cars, personal aircraft, and yachts
  3. These additional cesses will be removed after five years.

B2B

Cess

  1. A cess imposed by the central government is a tax on tax, levied by the government for a specific purpose. Generally, cess is expected to be levied till the time the government gets enough money for that purpose.
  2. For example, a cess for financing primary education – the education cess (which is imposed on all central government taxes) is to be spent only for financing primary education (SSA) and not for any other purposes.
  3. A cess is different from the usual taxes like excise duty and personal income tax as it is imposed as an additional tax besides the existing tax (tax on tax).  For example, the education cess of 3% on personal income tax of 30% is imposed as a tax on the prevailing 30%. As a result, the total tax rate goes up to 30.9% (30% basic rate + 3% (cess) of the 30%).

Entering the age of GST

Note4students
 
Mains Paper 3: Effects of liberalization on the economy
News card discusses details about the short term obstacles involved in the implementation of GST
Once You are done reading this op-ed.You will be able to fully attempt the below mentioned question
Q.) Discuss the merits of GST and also highlight the  Apprehensions/concerns involved in the implementation of GST?
From UPSC perspective, following things are important:
Prelims level:Products excluded from GST
Mains level: GST is very important from mains perspective. The op-ed has highlighted both positives and negatives of GST.

Context: Nationwide rollout of GST from today
Apprehensions/concerns involved in the implementation of GST?
  1.  Exclusion of Petroleum products: 35-40% of revenue from indirect taxes are coming from petroleum products which are excluded from GST so cascading effect will continue.
  2.  Multiple tax rates in GST could lead to lobbying, additional burden on administration, increases the compliance cost and the load-bearing capacity of technology needed for providing input tax credit with multiple rates by matching every invoice.
  3.  Anti-profiteering clause creates considerable apprehension
  4.  Requirement of e-way bills for inter-State movements has also been a cause of concern
  5.  Complexity of the structure of GST
  6.  Untested technology platform adds to the fear
  7. Slowdown in the economy in the short term.
Advantages
 
1. Significantly reduce the transaction cost of doing business in India
2. A unified  single tax  will reduce compliance cost and administrative cost in the long term
3. Doing away with levies like octroi will ensure a more unified market
4. Economy will be more export-competitive by reducing the cascading on account of levies like octroi, purchase tax and central sales tax  etc
5. Seeding of PAN in GST registration will make it difficult for businessmen to evade the tax.
6. Including real estate will help in fighting black money
Back2Basics
Anti-profiteering clause : Any reduction in rate of tax on any supply of goods or services, or the benefit of input tax credit shall be passed on to the recipient (consumer) by way of a commensurate reduction in prices.

For upstream companies: Exemption of petro products from GST to push up cost of production

Note4Students:

Mains Paper 3: Economy | Mobilization of resources

The news card discusses inclusion of imported inputs for purposes of oil and gas refining in tax-net and its possible results.

From UPSC perspective, following things are important:

Prelims level: GST, Input tax credit

Mains level: Effects of GST on various sectors of economy


 News:
  1. Keeping petroleum products such as petrol, diesel, natural gas out of the ambit of the Goods and Service Tax (GST) is expected to result in higher cost of production
  2. This will be for upstream companies such as oil and gas exploration firms as well as for downstream refining companies
  3. For the end-consumer, this exclusion from GST, however, is unlikely to result in any significant increase in prices

Inclusion/Exclusion:

  1. The output of upstream and downstream companies have been kept out of the GST
  2. The inputs that go into their making is subject to levy of GST
  3. For instance, an oil or gas refiner that imports inputs such as gases, platforms, parts of platform, cranes, chemicals etc will have to pay 5 per cent tax under the GST regime
  4. All these are tax-free in the current regime

Increase in prices + No input tax credit:

  1. No passing on to customers: Even though the cost of production increases, these can’t be totally passed on to customers such as domestic refineries or exports since the prices of these products are linked to international benchmarks
  2. Possible migration: Any increase in prices due to higher taxes locally will encourage buyers to scout for international contracts offering similar products at cheaper prices
  3. For refineries, nearly 70 per cent of their refined products are petrol, diesel, natural gas, aviation turbine fuel (ATF), which are out of the GST net
  4. Currently, the refineries take input tax credit on almost 80 per cent of the taxes paid
  5. Now the refineries cannot take credit for inputs that go in for production of petrol, diesel and ATF

Under the GST umbrella, three taxes for states/UTs and Centre

Note4students

Mains Paper 3: Economy | Mobilization of resources

The newscard gives a wholesome understanding of GST. Read it carefully to develop your understanding. Few takeaways are:

Prelims Level: Read about CGST and IGST, implementation, etc.

Mains Level: Understand the working of GST for writing a good Mains answer


Context

  1. Under the GST regime, the Centre and states/Union Territories shall simultaneously levy indirect taxes on a common tax base

Taxes within GST

  1. Within the umbrella of GST, the GST levied by the Centre on intra-state supply of goods and/or services will be called Central GST (CGST) and levied by states/UTs, State GST (SGST/UTGST)
  2. Integrated GST (IGST) will be levied and administered by the Centre on the inter-state supply of goods and services

Why the state tax?

  1. CGST and SGST/UTGST were decided keeping in mind the federal structure of the country
  2. Here both the Centre and the states have the powers to levy and collect taxes through appropriate legislation
  3. The CGST and SGST will be levied simultaneously on every transaction of supply of goods and services except exempted goods and services
  4. They will not be implemented on goods which are outside the purview of GST, and transactions which are below the prescribed thresholds

Some understanding of GST implementation

  1. SGST and CGST will be levied on the same price or value
  2. This will be unlike state VAT, which is levied on the value of the goods inclusive of CENVAT
  3. The location of the supplier and recipient within the country is immaterial for the purpose of CGST
  4. SGST will be chargeable only when the supplier and recipient are both located within a state
  5. IGST shall be levied and collected by the Government of India, and such tax shall be apportioned between the Centre and the states

How Will GST Work?

  1. Under the GST regime, tax liability arises when the taxable person crosses the turnover threshold of Rs 20 lakh
  2. For Northeastern and ‘Special Category’ states, it is Rs 10 lakh
  3. Cross-utilisation of input credit of one component of tax against the other is allowed except utilisation of credit of CGST for SGST and vice versa

Don’t Tax Clean Energy

 

Note4students

Mains Paper 3: Economy | Mobilization of resources

The newscard has details on the GST Rate Schedule of solar power systems and its modules and panels. The article talks in detail about the implications of the tax and is an important read from UPSC point of view.

Prelims Level: Read the tax slabs for the power systems and its components

Mains Level: Know about the impact of the difference in the taxes on solar energy, how the cess is utilized to write a critical answer on GST.


Context

  1. The GST Rate Schedule for goods has put ‘solar power generating systems’ and ‘photovoltaic cells whether or not assembled into modules or made into panels’ into different tax brackets

Tax on solar power

  1. GST rate schedule suggested that all solar power generating systems will be taxed at 5%
  2. This will be similar to the tax on wind systems
  3. This would put solar and wind in the same tax bracket as coal
  4. Coal was previously taxed at 11.69%
  5. Nuclear fuel too will be taxed at 5%

The state of confusion

  1. Another chapter of the GST rate schedule noted that semi-conductor devices including PV cells, which may or may not be assembled into modules or panels, would be taxed at 18%
  2. The council has put solar panels in the 5% category
  3. The issue of tax on the remanining components of solar systems remains unresolved even on the eve of the rollout of the new fiscal regime

What will be the impact?

  1. In the first scenario, utility scale solar (panels and parts), along with other renewable energy sources of electricity as well as coal, is taxed at 5%
  2. Analysis suggests that GST would result in a minor rise of 1.6% in solar tariffs
  3. In a thriving solar market, this is unlikely to create any setback for the sector
  4. While 5% doesn’t seem a mammoth figure, the rise in price of solar power is not insignificant when seen in conjunction with the decline in taxes on coal
  5. 60% decline in taxation on coal is likely to make thermal power cheaper by as much as Rs 0.15
  6. This would set back some of the rapid advances made in recent times to close the price gap between the prices of solar power and thermal power
  7. The cumulative result, with a lower tax bracket for coal and higher (effective) tax implication for solar, would do little to incentivise already apprehensive utilities to purchase more solar power

What about the cess?

  1. The change in the tax regime would be accompanied by a change in use for the coal cess
  2. The cess is currently contributing to the National Environment Fund (NEF), with a mandate to finance and promote clean energy initiatives
  3. It is a carbon tax that will now be redirected

Use of cess:

  1. Collections from the cess on coal are now expected to be used to compensate states for the loss of revenue due to the GST regime
  2. Between 2010 and 2017, this cess has been used to make budgetary allocations to the ministries of New and Renewable Energy; Environment, Forests, and Climate Change; Water Resources, etc.

[op-ed snap] The GST’s top transition challenges

 

e:

source:

Note4Students:

Mains Paper 3: Economy | Mobilization of resources

The op-ed discusses implementation challenges of GST and brings up actual difficulties faced by industries. Fodder material for Mains.

After reading this op-ed You will able to partially solve the below mentioned question.As this op-ed discusses what challenges  industries will face while  transiting towards GST regime.  There are many other implementational challenges like preparation of state Government which are not discussed in this op-ed.

Q.) What uncertainties still remain in the implementation of GST? Discuss.

From UPSC perspective, following things are important:

Prelims level: Goods and services tax, Anti-profiteering provisions

Mains level: Lack of clarity related to various GST provisions and other related challenges faced in GST implementation, industry expectations and way forward.


News:

Context:

  1. Implementation of the goods and services tax (GST) from 1 July is on course, with all states and union territories, except Jammu and Kashmir, having passed state GST laws
  2. The government has attempted to relax the requirement for uploading invoice-level details for the first two months of the GST regime

Government confident, industry preparing:

  1. Government seems confident of being GST-ready
  2. Companies are fine-tuning their IT systems for reporting requirements under GST

Implementation challenges:

  • Treatment of closing inventory
  1. The GST council has accepted industry demand to provide higher relief to traders by enhancing the deemed credit in respect of closing inventory to 60% for goods liable to GST at 18% and above
  2. But  in sectors such as textile, pharma, fast-moving consumer goods, medical equipment, etc It may lead to lower offtake of products, affecting the industry badly
  3. The absence of transition provisions relating to capital goods in transit on 1 July is also a big challenge for industries
  • Adherence to anti-profiteering provisions
  1. Industry is finding it difficult to identify the quantum of benefit to be provided to customers in the absence of specific guidelines on the anti-profiteering provisions
  2. The anti-profiteering rules released by the GST council do not address these challenges
  3. Challenges include the manner of computation of profiteering, whether the anti–profiteering investigation is to be done at the product or service level, whether losses and gains from various product segments can be set off to determine the product level prices, etc
  4. The continuing lack of clarity has become a key challenge for industry
  • Modification of IT systems to make them GST-compliant
  1. Incorporating the recent changes in the reporting of returns is an additional challenge when it comes to being GST-ready
  2. The multiplicity of rates, decentralized registration, generation of item-wise invoice with multiple copies, calculation of item-wise GST for multiple slab rates, and printing of such invoices containing numerous details, have increased the implementation challenge
  • Intra-branch supply of services
  1. There is lack of clarity on determining the intra-branch services, transaction with employees, its valuation, and situations in which they have to comply with input service distributor provisions
  • Determining place of supply and location of recipient
  1.  The determination of location of the recipient in the case of a multi-location company and the corresponding place of supply adds to the complexity

Industry expectations:

  1. Industry is expecting the government to issue the requisite notifications soon, including the effective date of GST levy, eligible exemptions and concessions, and negative list of services
  2. Without this, effective transition planning is impossible

[op-ed snap] An old new tax

source:

Note4Students:

Op-ed discusses all aspects related to GST and has good fodder points for Mains. Bookmark it.

News:

Context:

  1. After sixteen years of processing, India is finally set to roll out the Goods and Services Tax (GST) from July 1
  2. The GST, to be collected on everything from matchboxes to gold, will touch everyone

Essentials for a modern tax system:

  1. A modern tax system should be fair, uncomplicated, transparent and easy to administer
  2. It must yield revenues sufficient to cover the cost of government services and public goods

GST limitations:

  1. India’s GST does not pass the above tests convincingly
  2. It is too complex
  3. Over half the items under 1200 categories will be taxed at 18% or 28% GST, the steepest rates in the multi-rate structure
  4. This skew violates the basic principle of revenue collection: the lower the taxation rate, the higher the compliance
  5. It should be collected at fewer and lower rates, and on more items

Concerns of states:

  1. The constitutional guarantee that the Centre will fully reimburse the transitional losses did not fully address the States’ insecurities
  2. The States insisted on keeping the GST’s rate structure as close as possible to the old system
  3. The options narrowing to a delayed or an imperfect GST, the Centre chose to defer to the States’ collective opinion
  4. The result: far from simple or neat, the new indirect tax is a multitude of rates, cesses and exemptions

Were states weak in pressing their point?

  1. According to Chief Economic Advisor Arvind Subramanian, the political pressures from the States to keep rates low and simple were minimal
  2. There was insufficient concern for the implied consequences for efficiency and simplification
  3. The general desire is for the structure to mimic the complicated status quo

What will this lead to?

  1. The lingering imperfections, and disregard for economic principles, will limit the GST’s transformational potential

What can be done?

  1. The GST Council must show sensitivity to transitional challenges
  2. A hotline among its members, as an instantaneous problem-solving mechanism, may smoothen the transition
  3. Concerns of all stakeholders should be taken on board, especially of small firms

E-tailers get GST relief, date for TDS deferred

 

Note4Students:

GST is proving to be a decision taken in haste and government is now providing different timelines to various stakeholders to join in the system. Can be used in Mains answers.

From UPSC perspective, following things are important:

Prelims level: GST, TDS, GST rollout date (Seeing Prelims 2017 you cannot take chances)

Mains level: What should be the procedure to adopt big bang reforms (like GST) and various other related issues.


News:

  1. Centre has decided to keep in abeyance the applicability of legal provisions pertaining to small businesses selling their wares on e-marketplaces in the Goods and Services Tax (GST) regime
  2. Requirements for e-commerce portals to deduct tax at source from sellers using their online marketplace have also been deferred

New rules:

  1. As per the provisions of deduction of tax at source under Section 51 e-commerce players were required to collect 1% tax at source while paying suppliers after July 1
  2. Also as per collection of tax at source under Section 52 of the central GST and State GST Acts of 2017, notified entities need to collect TDS for payments to suppliers for over Rs. 2.5 lakh

Registration still mandatory:

Persons who will be liable to deduct or collect tax at source will be required to take registration
the liability to deduct or collect tax will arise from the date the respective sections are brought in force

GST rollout:

  1. Barring the State of Jammu and Kashmir, the country will switch to the GST regime from July 1

Suggestions for GST rollout:

  1. It is entirely new form of indirect tax, and therefore the best way to implement would be to provide detailed guidelines with case studies
  2. Why? The purpose is to track transactions and not collect tax; and therefore it is imperative that the tax collectors have clear point of view from the government

GST part of digitisation push, will broaden tax base: Urjit Patel

Note4students

From UPSC perspective, following things are important:

Prelims level: Not Much

Mains level: Article presents the view of RBI Governor on the GST

News

  1. What: Reserve Bank of India Governor Urjit Patel has said that the GST will broaden the tax base, which in turn will lower the overall taxes in the long-term
  2. Besides creation of a national market, GST will also reduce many inefficiencies within the states while moving goods from within a state and also across the country
  3. What he said on fintech: he said with the emergence of technology-enabled innovation in financial services there will both opportunities and risks to financial sector stability
  4. And it need to be addressed by policy makers, regulators and supervisors, as many innovations have not been tested through a full financial cycle
  5. The country’s fintech industry has almost tripled its size since 2013 and the value of transactions has touched $30 billion already

Anti-profiteering body under GST can take suo motu action

Note4Students:

Important authority under GST. Read and make notes.

From UPSC perspective, following things are important:

Prelims level: National Anti-Profiteering Authority, GST, What is Anti Profiteering (Read in B2B).

Mains level: GST- Functioning and other related aspects.


News:

  1. The National Anti-Profiteering Authority, to be set up under the Goods and Services Tax (GST) regime, will have wide-ranging powers
  2. It will be able to issue notices to anybody that it feels warrants a “fair enquiry,” as per the rules finalised by the GST Council

Powers given to authority:

  • order a reduction in prices
  • impose a penalty
  • cancel the registration of a company deemed to have not passed on a tax rate reduction to consumers

Structure of proposed authority:

  1. Authority is to be chaired by either a retired High Court judge OR
  2. a member of the Indian Legal Service who has at least three years of experience at the level of Additional Secretary or higher
  3. Step 1: There will be a Standing Committee, which would receive complaints from anyone about profiteering practices
  4. Step 2: The Standing Committee, after reviewing the prima facie evidence, will refer the matter to the Director-General of Safeguards (DGS) for a detailed investigation
  5. Step 3: The DGS must complete its investigation within three months of receiving the reference from the Standing Committee OR
  6. furnish in writing reasons for a delay, which itself cannot exceed three months more
  7. Total time to be taken: The Authority will have three months to issue its verdict following the investigation by the DGS, which means the entire procedure, from investigation to verdict, cannot exceed nine months

Back2Basics:

Anti Profiteering

  1. Since goods and services are taxed at multiple stages of supply chain, any changes in tax structure or tax rates create an opportunity for improved profit margin at each stage of supply chain
  2. Clause 171 has been inserted in the GST bill which provides that it is mandatory to pass on the benefit due to reduction in rate of tax or from input tax credit to the consumer by way of commensurate reduction in prices

GST storm brews in services sector

Source


Note4Students:

Another problem associated with GST. Read and take note of it in order to use it in pros and cons type questions related to GST in Mains.

From UPSC perspective, following things are important:

Prelims level: GST, GSTN, VAT, Service Tax, GSTIN.

Mains level: Problems associated with GST and possible solutions.


  News:

  1. With just 15 days remaining for the rollout of the new tax regime, experts have raised a red flag over challenges faced by the services sector in moving to the Goods and Services Tax system
  2. The key issue is that the GST Network is yet to begin accepting fresh registrations
  3. Till now GSTN portal has only been accepting requests for migration from the current regime to the GST system

Current tax system and changes that GST would bring:

  1. Under the current tax system, a service company with multiple offices across India needs to take one service registration number
  2. Under the GST system, it will be required to get registrations done in each state where it has operations

GST enrollment process and problem with services sector:

  1. For any person to migrate to GST, they are required to be registered under the current law either as a service provider or as a dealer 
  2. Based on that, they are given a user name and password, using which they can log on to the GSTN website to register under the new regime and upload documents
  3. GSTN is allowing provisional registration only for companies with VAT and service tax registration (VAT is state specific)
  4. Services, especially software companies, need to do business in several states and they are not registered in every state in which they operate
  5. Now, all the services companies having pan-India operations, which typically includes sectors like technology, advertising, consulting, logistics, etc, are faced with this situation of not having state-level GSTIN (Goods and Services Tax Identification Number)

Possible solution:

  1. Government can provide relaxation by saying the GST number is not needed on the invoice, but only needed by the date of filing returns

Back2Basics:

Know everything about GST here (click2read)

Container Cargo Business: Railways may lose competitive edge post GST

Note4students

Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, following things are important:

Prelims level: Basics of the GST(done many times)

Mains level: Facts given in the article can be quoted for ‘negative side of the story of the GST’

News

  1. What: According to Railways, the GST is creating an unfair price advantage for the road sector
  2. How: The GST rate fixed on movement of container cargo by roadways has been kept half in comparison of the rate for railways
  3.  The GST regime will impose a 12 per cent tax on container cargo moved by the railways whereas the same container moved by road will attract only 5 per cent GST
  4. Hence, railways will seek a reversal in the GST rate fixed for the service
  5. Current Tax System: The tax burden on the client in road sector is 4.2 per cent, which will rise to 5 per cent post GST(a marginal rise)
  6. For railways, the same will increase from the current 5.6 per cent to 12 per cent

GST Council decides to lower rates on 66 items

Source


Note4Students:

Another news in GST chain. We have already said that no matter how many times GST news items occur, we will have to cover it. Note important points (Well, we only include important points 🙂 )

From UPSC perspective, following things are important:

Prelims level: GST Council, various tax slabs.

Mains level: Will GST be a reform as lauded or it will ultimately result in increased burden of filing returns and other compliance measures. Also, its effect on inflation due to price rise of various daily use items.


News:

  1. The Goods and Services Tax (GST) Council on Sunday decided to reduce tax rates on 66 items ranging from dry fruits to stationary, medical supplies and packaged foods
  2. The Council has also reduced the tax rate on cinema tickets costing Rs. 100 or less

Relief to small businesses:

  1. The Council also decided to increase the limit under the compensation scheme from Rs. 50 lakh to Rs. 75 lakh
  2. The scheme was introduced for small businesses that would struggle to comply with the various requirements of GST
  3. Those opting for the scheme will have to pay tax at the rate of 1% for the trading community, 2% for those engaged in manufacturing, and 5% for restaurants

(Don’t remember the rates as such but point to remember is that there are different slabs for classification of businesses- UPSC frames confusing statements from these kind of points)

Objective behind the move:

  1.  Maintain revenue neutrality, and this also eases the burden on SMEs and small businesses in trading, manufacturing, and the restaurant business because they are mass job creators

Under Goods and Services Tax regime: State govts oppose Centre’s proposal on sharing MDR burden

Note4Students:

Demonetization has been casting its shadow on GST implementation and another such instance is related to digital payments and associated charges. Digital payment push in upcoming GST regime will have to face many challenges, MDR being one of them.

(GST updates to UPSC students are akin to that movie inception to an unsuspecting audience. So much has flown under the bridge that even a seasoned aspirant cringes on this 3 letter word GST more than he does on CSE. One advice: Don’t be overwhelmed. Our job is to give you news. Yours is to read and bookmark the relevant ones)

From UPSC perspective following things are important:

Prelims level: Merchant Discount Rate, digital payment methods and various stakeholders (RBI, NPCI etc)

Mains level: Difficulties in digital payment push and implementation of GST


News:

1. Several states have opposed the Centre’s proposal that the burden of Merchant Discount Rate (MDR) charges should be shared between the Centre and states.

Context:

1. Under the GST regime, it had been provided that taxpayers would be able to make payments of CGST, SGST, IGST and the GST compensation cess by a single transaction, through a single challan.

2. A decision needed to be taken on the sharing of MDR charges for GST payments up to Rs 1 lakh using debit cards, between the states and the Centre.

Demonetization aftermath:

1. After demonetisation, with an aim to incentivise the use of digital economy, the central government had decided to bear the applicable MDR charges of payment of government dues (taxes, non-taxes and other payments) up to Rs 1 lakh made by Indian citizens using debit cards.

MDR rate:

1. RBI has capped the rate in between 0.25% to 1% depending upon amount transacted through debit cards.

2. There is no RBI cap on MDR on credit card payments.

What Central government desired?

1. Splitting of charges between the states and the Centre based on the amount of CGST, IGST or SGST collected using a single challan would have led to cross utilisation i.e. amounts being divided disproportionately

2. Centre suggested to split these charges in proportion of final GST revenues accruing to the states and the Centre after cross-utilisation and apportionment processes are finalised

Opposition from various States:

1.Delhi: Since the Centre had been bearing this expense, it should continue to do so

2. Puducherry: The burden on the state governments should be worked out before taking a decision on the mechanism to split the MDR charges between the states and the Centre

3. Andhra Pradesh: Since demonetisation, the Central government had been giving incentives to make payments by credit and debit cards, so the state governments should not be given this burden after the GST rollout

4.Uttar Pradesh: Suggested that the Central government could bear the entire charge for the first two years and then the states could take a call whether to bear this charge or not

[op-ed snap] GST no panacea

source:

Note4Students:

Mains Paper 3: Economy | Mobilization of resources

GST implementation days are not far away and apart from being cheerful many people are also skeptical about it. This op-ed discusses all possible doubts about GST and conditions that may arise after its implementation. Can be used in pros and cons type answers related to GST in Mains.

From UPSC perspective, following things are important:

Prelims level: GST, Taxes imposed by various states, other related topics.

Mains level: Pros and cons of GST, How it will help economy and other related topics.


News :

Context:

  1. New dawn for Economy: The Goods and Services Tax (GST) is being flaunted as the single-biggest economic reform since the economic liberalisation of 1991
  2. Even critics of the tax, who complain about its complex four-slab rate structure, agree that it is a step in the right direction
  3. Why? The primary reason is that it does away with the present system of multiple Central and State taxes, replacing it with a much simpler tax system

Other benefits:

  1.  No cascading effect: Another supposed benefit of GST is that it is a tax on consumption, which replaces the current web of ‘cascading’ taxes in the production chain that increases prices and distorts production
  2. One Indian market: In the process, it is said, the new tax system does away with the barriers to free trade within and between States, effectively turning India into a single free market for goods and services

Doubts that persist:

  1. Higher tax burden: A nationwide tax such as the GST will lead to a higher tax burden as it reduces tax competition .Earlier, States which were keen to attract investment and labour from each other had a reason to cut taxes
  2. From national to international: Now, the Centre, which will face no tax competition except from the rest of the world, can determine rates at whim. This will encourage tax rate increases that are detrimental to growth
  3. Actual tax burden not revealed: The number of taxes does not necessarily reflect the actual burden imposed on businesses by any tax system For example, a single, high tax rate might impose a greater burden on businesses than multiple taxes that add up to a lower rate
  4. A single, low tax rate might also turn out to be more burdensome if the cost of bureaucratic compliance is higher than under multiple, higher tax rates
  5. No change in prices: Contrary to common belief, the prices that consumers pay don’t rise or fall in tandem with taxes imposed on goods, be they production or consumption taxes
  6. Consumer prices are determined purely by consumer demand, not the cost of production
  7. Production distortion: A discriminatory tax might force businesses to discontinue or reduce the supply of certain goods in favour of others. Such distortion of production can lead to the rise in the prices of certain goods (due to lower supply) and a fall in the prices of others (due to greater supply), which is clearly not the same as a general increase in prices

[op-ed snap] The GST train chugs along

source: 

Note4Students:

Mains Paper 3: Economy | Mobilization of resources

The country’s biggest tax reform is set to be implemented from 1st July and you need to about it from every aspect. The op-ed covers all the aspects related to GST. Read and bookmark it.

From UPSC perspective, following things are important:

Prelims level: What is GST? Items excluded, how states would be compensated for revenue loss, implementing authority and all such details.

Mains level: Is GST really perfect? Pros and cons of implementation and other related issues.Closely study the points in this news-card with respect to the fault lines of the current GST .They can help you to frame the answer if a question comes in mains where you have to critique the present GST structure.


Context:

  1. In about a month, India’s new indirect tax system will be rolled out
  2. It has been described as the biggest reform in indirect taxes

Joining the big league:

  1. India now joins some 160 other countries that already have a Goods and Services Tax (GST)
  2. The only large economy exception without a GST is the United States
  3. Most other countries have this consumption tax as a key component of their indirect taxes

Key features of GST:

  1. From production to consumption- It moves the tax system from production to consumption and covers the gross domestic product (GDP) more comprehensively. Because the tax base is now a much wider set of transactions, hopefully the per capita tax incidence will be lower
  2. Eliminates cascading-  It eliminates a major bane of cascading, i.e. having to pay tax on tax. and will thus increase efficiency of taxation.
  3. Interlocking incentives for compliance- The GST has interlocking incentives for compliance, because your tax incidence, and refund, depends on production of proof of tax paid by your supplier. The paperwork, or rather the computer records, is interlinked in a chain. No one person in the chain can evade tax because it hurts either his vendor or customer
  4. In that respect, the GST’s interlocked incentives look similar to Grameen Bank’s joint liability lending in microfinance. Micro loans are given without any collateral, but if one person defaults, the entire group is blacklisted. This ensures an almost 100% repayment rate

Benefits to the economy from GST:

  1. Higher GDP growth
  2. Lower inflation
  3. Buoyant tax collections
  4. Wider coverage and less tax evasion, and,
  5. Most importantly, a truly common economic market across the country

How did GST dream come true?

  1. The roll-out of this historic reform required amending the Constitution
  2. Legislative action in Parliament as well as State legislatures
  3. Setting up of the GST Council and deciding on the applicable tax rates on more than 1,200 items
  4. This achievement is itself a heroic example of consensus-building across States and political parties

GST- Background:

  1. The origins of the GST go back almost two decades and are also found in the reports of the Kelkar Committee on Tax Reforms
  2. The basic premise of tax reforms then and now is to aim for lower rates, simpler code and eliminate exemptions

Fault lines of current GST structure:

  1. Chance of classification disputes- With five slabs of 0%, 5%, 12%, 18%, 28% plus cess, we have increased the chance of classification disputes, discretion and litigation
  2. Encourage tax evasion- The high rates encourage tax evasion, distort decisions, and promote wasteful resources into tax avoidance
  3. Increase cost and complexity- Multiple rates increase cost and complexity. As the GST Task Force of the Thirteenth Finance Commission also pointed out, the cost of auditing the classification of exempt, low rate and high rate slabs across every stage of production, distribution and consumption is very high
  4. Inflation may go up- Since almost 60% of India’s GDP is from services, and the rate is moving from 15 to higher, it is quite likely that inflation will inch up. This is especially evident in the financial, telecom, hospitality and trade services
  5. Large part of the economy still uncovered- A large part of the economy is still not covered by the GST. Potable alcohol, crude oil, natural gas, aviation fuel, diesel, petrol, electricity and real estate are currently out, and States will levy their own taxes on these. Taxes paid on these will not be able to be offset against the GST. To that extent it is an inflationary distortion.

GST Council finalises rates for services

Note4Students:

Mains Paper 3: Economy | Mobilization of resources

Important. GST set to be rolled out in July makes it way more important than any other topic. Apart from question in Prelims, you can definitely expect a related question in Mains. Note the concerns being raised by industry on new tax rates.

From UPSC perspective, following things are important:

Prelims level: GST rate slabs, implementing department and other related details.

Mains level: Effect of new tax rates on various stakeholders.


News:

  1. The Goods and Services Tax (GST) Council has finalised tax rates for all services, except lottery, under the new indirect tax regime to be rolled out from July 1

Services categorised

  1. In the services sector, depending on the nature of service… there are various categorisations that have been made
  2. Besides the exempted category, which include healthcare and education, all other services have been fitted into four different rates of 5%, 12%, the standard rate of 18%, and luxury rate of 28%.

(a) Services Exempted from tax: Education, healthcare and non-AC rail travel will continue to remain exempted under the proposed indirect tax regime.

(b) Services with 5 % taxation: Goods transport cab aggregates, Advertisements placed in newspapers ,AC rail travel and Economy class air travel will attract a 5 per cent tax.

(c) Services with 12 % taxation: Non-AC restaurants,hotels with tariff of Rs 1,000-2,000 per day.

(d) Services with 18 % taxation: Telecom and financial services ,AC restaurants and those with liquor licences,Hotel with tariff of Rs 2,500 to Rs 5,000.

(e) Service with 28% taxation: luxury hotels, gambling, race club betting and cinema services will attract a levy of 28 per cent.

Moving away from international practice:

  1. The proposed tax structure on services is much more complex than of that at present
  2. For hotels, restaurants and transportation, a distinction has been made on the basis of room tariff, turnover of business and so on
  3. This is not in line with international practice, where a uniform rate is applied on a particular service irrespective of value or status of the business

What this could result into?

  1. Levying GST at the demerit rate of 28% for 5-star hotels could be a dampener for tourism, especially in cases of business travel in a State where the recipient does not have registration.

 

 

Goods done, GST Council seals tax rate on services

Source: http://economictimes.indiatimes.com/news/economy/policy/goods-done-gst-council-seals-tax-rate-on-services/articleshow/58754379.cms

 

[op-ed snap] GST clarity, at last

Note4Students:

Mains Paper 3: Economy | Mobilization of resources

Important op-ed. GST set to be rolled out in July makes it way more important than any other topic. Apart from question in Prelims, you can definitely expect a related question in Mains. Bookmark this newscard for future reading.

From UPSC perspective, following things are important:

Prelims level: GST rate slabs, implementing department and other related details.

From Mains level: A  complete understanding of GST is necessary and this op-ed along with tax rates also discusses near term challenges. Read and note them.


Context:

  1. The Goods and Services Tax Council has released details of the rates at which over 1,200 goods will be taxed when the GST regime takes effect

New tax structure:

  1. Under the new structure, judging from the initial list of 1,211 items, the predominant share (43%) of goods will be taxed at 18%, while 17% and 14% of the notified items will fall under the 12% and 5% tax rate slabs, respectively
  2. Tax exempt items: Around 7% of the items, which include essential goods such as milk, fruits, cereals and poultry, have been exempted from all taxes
  3. Highest tax slab: A significant share (19%) of goods, however, has been tucked under the 28% slab: many of these cater to the daily needs of the growing middle class
  4. Cess applied: Apart from these four regular tax slabs, additional cess taxes of varying rates have also been imposed on sin and luxury goods such as pan masala, cigarettes and sports utility vehicles to compensate the States for loss of revenue during the initial years

Effects of this change:

  1. Progressive tax code: The four-slab structure of the GST regime gives it the look of a progressive tax code, in contrast to similar consumption-based taxes prevalent in other countries, which are essentially simple, flat taxes
  2. Revenue-neutral: Government has said the new tax regime will be revenue-neutral. If so, the GST’s influence on private spending will possibly remain muted

Challenges in near future:

  1. Check backdoor rate manipulation: Prevent backdoor rigging of rates through additional levies that are completely discretionary
  2. Keeping states under control: States that have added significantly to their debt burden in recent years must be kept in check. Additional discretionary taxes would add to the overall tax burden and particularly compromise on tax predictability
  3. Try keeping tax rates immune from fiscal demands: The Centre and States must keep their pressing fiscal demands from influencing tax rates upwards in the future

B2B: 

Image result for GST in India explained

Source: http://indianexpress.com/article/business/economy/low-gst-rate-of-18-to-reduce-taxes-on-goods-but-services-may-turn-costly-2952660/

 

GST Council sets rates for most commodities

Note4students

From UPSC perspective following things are important:

Prelims level: What GST council is, its structure, exempt list under the GST


News

  1. The Goods and Services (GST) Council has agreed on the fitment of almost all commodities in the various tax slabs under the new indirect regime
  2. GST will be rolled out on 1 July
  3. Items exempted from Taxes : Milk, cereals (unpackaged and unbranded), and jaggery will be exempt from any GST.
  4. Items of low taxation:  sugar, tea, coffee (except instant), and edible oil will be taxed at 5%.
  5. Items of Moderate taxation: Common use items such as soap, toothpaste, and hair oil, which currently attract a tax rate of 22-24%, will be taxed at 18%.Capital goods and industrial intermediaries will be taxed at 18%.
  6. Items of High Taxation: Consumer durables will come under the 28% tax bracket, down from the current 30-32% rate.mall petrol and diesel cars will be taxed at 28% with small petrol cars attracting a cess of 1% and small diesel cars 3%. Luxury cars will attract a 15% cess in addition to 28% GST. 350 cc bikes will attract a cess of 3%
  7. Over 1,200 items to be considered under GST, 7% have been put under the exempt list.

Back2basics

GST and GST Council

Source: Economic Times

 

[op-ed snap] Who’ll audit GSTN?

Context:

  1. If the GST Council is going to be the most powerful body in the GST era, the GST Network (GSTN) would be the most critical one
  2. GSTN is a not-for-profit company set up primarily to provide IT infrastructure and services to the Centre and States, tax payers and other stakeholders for implementing the GST

Objective:

  1. The objective of GSTN is to ensure that there is a strong IT infrastructure and service back bone
  2. It enables capture, processing and exchange of information among the stakeholders, which would include tax payers, States and the Centre, Accounting Offices, banks and the RBI

Headlines on GSTN:

  1. First, it was in the news for its shareholding pattern — the Centre and States each hold 24.5% in GSTN; LIC Housing Finance holds 11%; while HDFC, HDFC Bank, ICICI Bank and NSE Strategic Investment Company hold 10% each
  2. Questions are already being asked as to what business private companies have with an organisation mainly supporting the Government in managing a large tax database
  3. Principally, it centers around a concern over data security
  4. The Government says the data would be confidential but right now it is nothing more than an assurance
  5. Another question is whether the CAG can audit the GSTN
  6. The CAG feels it has all the powers to do so; while the GSTN says it is best audited by a third party

Choose your auditor:

  1. Sections 139 and 143 of the Companies Act, 2013 categorically mention that the CAG can audit a company which is either owned or controlled by the state
  2. The GSTN website is full of facts as to how several measures of strategic control of the Government over GSTN have been envisaged and included in the Articles of Association of GSTN
  3. Technically, the CAG can audit all receipts and expenditures of a body or an authority if it receives substantial grants and loans from the governments

Revenue model:

  1. In its startup phase, the GSTN has funded itself with grants from the Government as well as some bank borrowing
  2. Once the GST is rolled out, GSTN has a revenue model in place and would not depend on the Government
  3. On the contentious issue of tax data, the GSTN says it holds the data in fiduciary capacity and that the CAG can gather the data from the States and the Centre or the Central Board of Excise and Customs
  4. However, past experience in terms of accuracy of tax data from State governments has not been good
  5. The Centre had to get into long and protracted negotiations with States to settle their promise of compensating them loss of revenue due to reduction of Central Sales Tax — primarily due to lack of authentic data with both on the quantum of revenue loss

Note4Students:

Since the CAG mostly do proprietary audits, it is necessary that the tax data and infrastructure be audited by the government auditor. Focus on the role and powers of CAG in this regard.

GST to boost growth by 4.2%: Federal Reserve

  1. Source: A U.S. Federal Reserve paper
  2. What? The GST can boost India’s GDP growth by up to 4.2% — double the previous estimate
  3. How? Lower taxes on manufactured goods will bump up output and make products cheaper
  4. GST could reduce inefficiencies in the production process while eliminating the current compounding effect of different central and state levies
  5. Dubbed as the biggest tax reform since Independence, GST will unify at least 10 indirect taxes into one to be collected at State and central levels

Note4students:

Can be used in support of GST in mains answer.

Confusion reigns on CAG audit of GST data

  1. Issue: CAG’s audit jurisdiction over and audit of data of GST and GST-Network
  2. For full implementation of the GST regime, to decide the compensation for States and to determine their revenue share, auditors of the CAG will require access to two different datasets, which are proving difficult to come by
  3. One of them is data pertaining to revenue that would accrue to States from alcohol and petrochemicals, both of which are outside GST for now
  4. The second is issue of where and how CAG auditors will get access to the GST data
  5. No data access: The GSTN has refused to give the CAG access to its network
  6. Why? GSTN is only holding the data in a fiduciary capacity since the tax data originally belongs to the Centre and States
  7. Also, the GSTN is owned by a private company (51% stake held by private companies such as HDFC and ICICI Bank), and thus cannot be audited by CAG
  8. CAG stance: Under the new Companies Act, GSTN can be counted as government-controlled company since its strategic control will be with the government & like any PSU, the CAG could depute chartered accountants to audit GSTN
  9. Real issue: However, the real issue is where would auditors get access to the massive tax data from all over the country that GSTN’s network will have
  10. Accessing the data at various points — point of manufacture, point of sale etc. —would make the GST audit a complicated and almost impossible task
  11. It will also hamper other functions, which would include CAG certification about the share of GST for States
  12. Solution: Getting access to the entire GST data in a centralised location like GSTN
  13. Also, it is notable that all that tax data, whether it belongs to States or Centre, is already available to CAG under existing constitutional provisions

Note4students:

Important issue over CAG’s jurisdiction of auditing and issue of data access. Important for mains. Also revise basics on CAG, composition, functions from polity book.

GST: anti-profiteering clause may weigh on business, market sentiment

  1. Context: The passage of four goods and services tax (GST) supplementary bills
  2. The anti-profiteering clause: This clause requires businesses to pass on the benefit of input credit or tax reduction to the end consumer by way of a commensurate reduction in prices
  3. Objective: To protect consumers from inflation after GST implementation
  4. Concerns: The implementation of GST has often led to some inflationary pressures in countries where this tax is already in place
  5. But while the objective may sound simple, implementing an anti-profiteering clause is fraught with grave risks
  6. Compliance: It is the biggest challenge
  7. The government will have to ask for pre- and post-GST cost sheet of each product and calculate the pre-GST tax rate and post-GST tax rate for each and every item to understand the quantum of tax benefit that a supplier should get
  8. There is still no clarity on how the profit would be calculated
  9. Monitoring businesses for long and minutely to understand whether benefits have been passed on is also an issue
  10. Less time to implement: In Australia, GST was implemented in 2000 and companies there were aware a year in advance that an anti-profiteering law was to be implemented; so they had enough time to prepare accordingly and their competition commission was also geared up accordingly
  11. In India’s case, it was only in the second draft in November 2016 that it was announced that this clause would be made mandatory
  12. Tax terrorism: A fear among corporates is that it gives lot of power to the taxmen who may misuse it and harass taxpayers

Note4students:

One of the few concerns in new GST law. Many would come up in public discourse. Keep track.

[op-ed snap] Next steps on GST

Background on GST:

  1. The Lok Sabha has duly given its assent to necessary Central legislation to operationalise the Goods and Services Tax
  2. This comes nearly 17 years after the government began discussions on the prospects for a unified indirect tax regime across the country

Implementation:

  1. It is eyeing a July 1 rollout for the GST, which will replace the multiple Central and State-level taxes and levies that make doing business in India a compliance nightmare today
  2. The long and winding road for this reform, punctuated by political about-turns, has had a fairly straight trajectory in recent months, following the constitutional amendments last August

Consensus reached:

  1. The GST Council has managed to thrash out a consensus on several issues relating to the administration and the legislative provisions for the new tax system within six months
  2. State Assemblies should pass the State GST law by holding special sessions if need be

GST provisions:

  1. For Indian businesses that have been seeking the reform, it is now time to come to terms with the fine print and embrace the tax system
  2. The GST Council, meeting again on Friday to clear four pending sets of regulations, must sign off on which of the five GST rates will apply to different products and services
  3. Clarity on the applicable rates will help industry alter their accounting systems, supply chains and pricing strategies
  4. The highest GST rate has been pegged at 28%, the integrated GST law has set a ceiling of 40%
  5. Though an enabling provision, it gives the government too much leeway to alter the rate structure in coming years without seeking Parliament’s nod
  6. Compare this to the cess ceiling of 15% on luxury cars, for instance, which are likely to see a 12% cess to start with
  7. On several other fronts, the final laws haven’t changed much from their draft versions, despite industry red-flagging several provisions
  8. For the services sector, in particular, compliance requirements could go up multi-fold

Note4Students:

This op-ed has factual detail on GST. Make notes for providing the figures in your Mains answer and for Prelims as well.

GST Council clears draft laws

  1. The GST Council gave its formal approval to the Central GST (CGST) and Inter-State GST (IGST) laws
  2. The Compensation Law has already been approved during the previous meeting in February
  3. A significant step towards meeting the July 1 deadline for the roll out of the Goods and Services Tax (GST)
  4. The SGST law will apply to all States and Union Territories with legislatures (Delhi and Puducherry), but will not apply to those Union Territories without a legislature
  5. Therefore, a Union Territories GST law would be needed for those Union Territories

Note4students:

The details on laws are not yet out. This is just to keep tab on the development of the issue.

[op-ed snap] GST and the litmus test of land

Context:

  1. After the steps taken to reduce black money and streamline election finance, the natural follow-up is to clean one of the biggest sources of black money — land and real estate
  2. And the natural way to do that is to bring the supply of land and real estate (hereafter LARE) into the GST
  3. At the moment, the GST law does not include LARE, but there is still a window to fix that in the GST Council meetings in the months ahead

Misconceptions:

  1. The first misconception is that stamp duties will be brought into the GST
  2. Many states have refused to entertain bringing LARE into the GST, fearing that their right to levy stamp duties on the sale of land — a big source of state revenues — will be taken away from them
  3. This fear is unfounded. There is no such intention; stamp duties will remain untouched
  4. The second misconception is that agricultural land will be taxed
  5. There is no intention to bring transactions relating to land for agriculture into the GST
  6. The fear that there is a slippery slope leading to taxes on agricultural land and income is also unfounded
  7. The third misconception is that low-cost housing will be taxed and made unaffordable
  8. There is no intention to bring transactions relating to low-cost housing into the GST
  9. The fear that the price of housing for the poorer sections will go up because of new taxes is also unfounded
  10. Housing below a certain cost (or below a carpet area of 60 square metres) will unambiguously not be subject to GST
  11. The fourth misconception is that the tax burden will increase and hence, the prices of LARE will go up — there is no intention to increase current taxation on LARE
  12. Bringing LARE into the GST will keep current effective rates of taxation broadly unaffected; what will happen is an increase in taxes at the final stage, but because credits will be available on input taxes, the real burden of taxation will not increase

What will come into the GST?

  1. Currently, an annual property tax is levied on land as a source of wealth by urban local bodies
  2. When land or property is sold, there is a stamp duty levied by state governments to register the sale. Neither of these will be brought into the GST
  3. In principle, the GST can be levied as a service tax on the supply of land and real estate

Service Tax:

  1. The service in question relates to that provided by those who develop and construct commercial and residential property (the LARE service provider)
  2. This service can be provided either as a works contract when the buyer gets the LARE to build and develop the property; or the service can be provided as the supply of an already constructed property (call it readymade property)
  3. Today, the law makes an arbitrary distinction between works contracts and ready-made property
  4. There is a service tax on works contracts both for commercial and residential properties
  5. This tax is about 4.5% levied on the total value of property, but no credits are available for taxes paid on inputs such as iron and steel, cement and other fittings and fixtures (many of which are transacted informally) that go into the construction of a property
  6. The lack of input tax credits means that the effective rate of tax is not the headline 4.5% but that rate plus the cascaded sum of all the input taxes: A rough estimate is that the effective tax rate even today is over 12%

No tax on readymade properties:

  1. In contrast, there is no tax on ready-made properties, commercial or residential
  2. Because there is no tax, there is also no provision of input tax credits — this means that here too, the effective rate of taxation is not the headline 0%, but the sum of all the cascaded taxes on inputs
  3. One technical reason that ready-made properties are not taxed currently is that some argue immovable property is excluded in the Constitution from the definition of a “good”
  4. Ready-made properties or rather, the service provided in building them, can easily be taxed as a service because the definition of what can be taxed under the GST is quite broad; supply of goods or services or both (excluding alcoholic liquor for human consumption)

Idea of GST:

  1. The key idea would be tax them at a standard rate and allow full input tax credits
  2. It is the flow of credit that will strike at black money because the self-policing nature of the GST will kick in- all input transactions, notably the sale of cement, iron and steel, and fixtures and fittings that go into the construction of property will have to be accounted for
  3. So, even as the tax on the consumer can be kept the same as today, the sales and purchases of inputs can be brought into the tax net
  4. This would be a real transformational step in the fight against black money in real estate

Land under GST:

  1. Another key problem is the exclusion of transactions relating to the sale of land per se from the GST net
  2. For that to happen, the sale of land (for non-agricultural purposes) must itself be taxable as a supply of good or service
  3. Only if the sale of land is taxed can there be input tax credit for this down the chain; and only if there is input tax credit will the self-policing GST mechanism for disclosing the sale of land transaction kick in when that land is further developed
  4. It is this disclosure that will strike at black money in land sale transactions
  5. Another advantage of imposing a GST on the first sale of land is that it will deter hoarding and encourage land development because when the latter happens, the GST can be claimed as a credit
  6. In contrast, the land hoarder will bear the full burden of the GST

Impediments:

  1. The exclusion of immovable property from the definition of “goods” is one impediment
  2. It is also quite defensible and intuitive to consider the sale of land, or the sale of the right to land, as a service which will then be covered by the definition under the GST
  3. Imposing a GST on the sale of land will be the big advance in striking at black money, complementing the other action described above to treat works contracts and ready-made properties similarly
  4. These two actions will, respectively, bring land and real estate into the GST — which could then become a truly transformational GST

The GST Council’s stand:

  1. In the GST Council, the Centre and some of the pro-governance states have expressed their support for bringing LARE into the GST
  2. But many of the largest states have expressed opposition
  3. At a time when there is a drive to root out black money creation, it is imperative to attack the source of the problem
  4. Bringing LARE into the GST is thus a litmus test for whether state governments are serious in their efforts to address the problem, and hence, supportive of the prime minister’s drive in relation to reducing black money

Note4Students:

For prelims, know what is in and out of GST ambit. For mains, know the broad analysis given above, what are the issues in bringing LARE into GST ambit, what are the advantages if brought into GST.

IRS officers raise concerns over dual control agreement

  1. The Indian Revenue Service Association has written to Prime Minister seeking his intervention in various issues relating to the implementation of the Goods and Services Tax
  2. Issues: It will substantially reduce the Centre’s tax earnings, curtail the power of the Central Board of Excise and Customs, and open the door for several legal issues
  3. The vertical division: That too in the ratio of 90:10 below ₹1.5 crore, is not only an undignified bad optics to the Centre but also is likely to lead to a situation where only 18% of the assessee base is available with the Centre
  4. Such skewed distribution of assesses does not bode well for the Centre-State fiscal balance of power
  5. With this ratio the Govt of India may lose revenue to the tune of ₹1 lakh and 10 thousand crore
  6. The cross-empowerment agreement: It has been worked out by the GST Council & it would mean that tax officials would be appointed without going through the historically standard procedure for the hiring of such officials and would curtail the functions of the CBEC, which was created for such a function
  7. At present, there exists a bureaucracy appointed through UPSC process and is appointed at the pleasure of the President
  8. Delegation of Central indirect tax related assessment function would amount to appointment of State officers indirectly without undergoing through the UPSC selection
  9. CBEC officers are capable of discharging the duty cast upon them and it is submitted that they be allowed to continue with such functions
  10. The problem of Parliamentary oversight: The proposed system would severely curtail such oversight
  11. IGST assessment errors by state government officers would go outside the oversight of CAG (Comptroller and Auditor General) and PAC (Public Accounts Committee)
  12. CAG and PAC submit reports to the parliament, to which the CBEC tax administration is answerable
  13. However, such oversight collapses once the powers under IGST is delegated to the States and effectively leads to grant of power without any accountability
  14. This is constitutionally impermissible
  15. Generalist: The main problem is that the role of tax specialists has been assigned to ‘generalists’ who do not have the experience or in-depth knowledge to handle all the various issues that could arise due to the implementation of GST
  16. GSTN has been manned by non-IRS officers at senior levels
  17. There are security and financial concerns in GSTN (GST Network), which could have been avoided by giving this work to DG, Systems, CBEC
  18. CAG and Home Ministry have already raised concerns regarding GSTN
  19. Govt’s call: However, despite raising these issues, the association admitted that the final call would of course remain with the government, and that the tax officers would abide by whatever the government decided

Note4students:

The issues raised here are very intricate. Know about them in case a question appears in mains.

[pib] Know about Government e-Marketplace

What?

  1. Government e-Marketplace (GeM) aims to transform the way in which procurement of goods and services is done by the Government Ministries/Departments, PSUs, autonomous bodies etc.
  2. GeM is a completely paperless, cashless and system driven e-market place that enables procurement of common use goods and services with minimal human interface

Benefits of GeM:

  1. Transparency: GeM eliminates human interface in vendor registration, order placement and payment processing, to a great extent
  2. Being an open platform, GeM offers no entry barriers to bonafide suppliers who wish to do business with the Government
  3. Efficiency: Direct purchase on GeM can be done in a matter of minutes and the entire process in online, end to end integrated and with online tools for assessing price reasonability
  4. For procurements of higher value, the bidding/RA facility on GeM is among the most transparent and efficient
  5. Secure and safe: GeM is a completely secure platform and all the documents on GeM are e-Signed at various stages by the buyers and sellers
  6. The antecedents of the suppliers are verified online and automatically through MCA21, Aadhar and PAN databases
  7. Potential to support Make in India: On GeM, the filters for selecting goods which are Preferential Market Access (PMA) compliant and those manufactured by Small Scale Industries(SSI), enables the Government buyers to procure Make in India and SSI goods very easily
  8. Savings to the Government: The transparency, efficiency and ease of use of the GeM portal has resulted in a substantial reduction in prices on GeM, in comparison to the tender, Rate Contract and direct purchase rates

Note4Students:

GeM is another government step towards a cashless economy. It is important to know about GeM for Prelims. The information can be included in a Mains answer on cashless economy.

PIB

GST stalemate resolved, rollout deferred to July 1

  1. News: The Goods and Services Tax (GST) Council arrived at a consensus on contentious issues such as administrative control over tax payers
  2. It has paved the way for GST to be introduced this year, although three months after the Centre’s original rollout deadline of April 1, 2017
  3. Issue: Cross empowerment and dual control
  4. Decision: The entire taxation base will be shared between the assessment machinery of the Centre and the States
  5. Issue: Who would get to collect tax on the economic activities taking place in Indian territorial waters
  6. Decision: The area of 12 nautical miles into the territorial waters is a part of the Centre’s territory. But as per convention, the States will be empowered to collect tax on any economic activity there
  7. Issue: Integrated GST (IGST)
  8. Decision: While the power to levy and collect the Interstate GST (IGST) will lie with the Central government, a special provision would cross-empower the States

Note4students:

These detailed technicalities may not be very useful but just be abreast of the happenings. You never know what the UPSC would ask.

Centre, states move a step closer to GST rollout

  1. Event: GST Council Meeting chaired by FM Arun Jaitley
  2. Both sides agreed to a compensation formula wherein the centre expressed its willingness to absorb any revenue losses accruing to the states on account of transition to the new indirect tax regime
  3. Similarly, the states met the Union govt halfway by agreeing to a proposal to explore alternative sources of receipts, besides the cess on so-called demerit goods including tobacco, pan masala and aerated drinks, to fund the compensation package
  4. The GST compensation bill, was cleared on Friday
  5. It will provide legal backing to the centre’s promise to compensate states if their revenue growth rate were to fall below 14% in the first five years of GST
  6. The base year for calculating the revenue is 2015-16
  7. Remaining issues: Sharing of administrative powers between the centre and states to govern GST
  8. It has been a source of discord between the two, with the states even claiming it could be a deal-breaker in implementing the singular piece of tax reform

Centre-state stalemate over GST jurisdiction continues I

  1. Issue: Stalemate between the Centre and states over administrative control under the proposed GST regime continues
  2. Mr. Jaitley’s and state finance ministers failed to arrive at a common ground on how Centre and states will control assessees under the new regime
  3. States view: They want the right to control all assessees with up to Rs 1.5 crore annual turnover
  4. The issue has remained a contentious one during the previous two GST Council meetings
  5. Any disagreement at the next meet holds potential of derailing rollout of the GST from the targeted April 1, 2017

Centre-state stalemate over GST jurisdiction continues II

  1. The GST Council in the last meeting on Nov 4, arrived at two options — horizontal division and vertical division
  2. Horizontal Division would mean taxpayers would be divided both for administrative and audit purposes based on a cut off turnover
  3. Those with a turnover over Rs 1.5 crore would be administered both by the Centre and states, while those with below Rs 1.5 crore would be administered solely by the state
  4. Vertical Division, based on ratios, assigns taxpayers to a tax administration, Centre or state, for a period of 3 years for all purposes including audit
  5. Taxpayers could be divided in a ratio which would balance the interest of the Centre and the states, both with respect to revenue and spread of numbers

Centre-state stalemate over GST jurisdiction continues III

  1. States feel they have infrastructure deployment at grassroot level and small taxpayers are familiar with state authorities
  2. Centre, on the other hand is unagreeable to the states’ demand of exclusive control over small entities which earn less than Rs 1.5 crore in annual revenue
  3. Reason: It wants single registration mechanism for ease to service taxpayers
  4. Instead of horizontally splitting the taxpayers, it has proposed to divide entire taxpayer base vertically
  5. As a compromise, it is willing to give states administrative power over 2/3rd of taxpayer base, with service tax continuing to be administered by Centre

GST to take effect from April 1: Jaitley

  1. Finance Minister Arun Jaitley said on Wednesday that major issues on the Goods and Services Tax have been resolved
  2. The new regime will be implemented from April 1, 2017

GST Council undecided over authority for tax assessment

  1. Source: Finance Minister Arun Jaitley
  2. What: The fourth round of meetings of the GST Council was inconclusive regarding the key issue of how to divide the authority to assess tax between the Centre and the States
  3. The FM said that the preparation of the drafts of the Central GST, State GST, Inter-state GST, and Compensation Law will be completed by November 14-15
  4. The draft laws will then be sent to the States, which will have one week to respond with any recommendations

Council fixes 4-level GST rate structure II

  1. There would be two standard rates of 12% and 18%, which would fall on the bulk of the goods and services
  2. Most services are expected to become costlier as the ones being taxed currently at the rate of 15% are likely to be put in the 18% slab
  3. The GST will subsume the multitude of cesses currently in place, including the Swachh Bharat Cess, the Krishi Kalyan Cess and the Education Cess
  4. Only the Clean Environment Cess is being retained

Council fixes 4-level GST rate structure I

  1. The GST Council finalised on Thursday a multiple-slab rate structure, including the cess, for the new indirect tax
  2. It will be levied at multiple rates ranging from 0% to 28%
  3. Ultra luxuries, demerit and sin goods, will attract a cess for a period of five years on top of the 28% GST
  4. On nearly half of the consumer inflation basket, including food grains, the GST will be at 0%
  5. The lowest slab of 5% will be for items of common consumption

Industry bodies call for eventual streamlining of multiple GST rates

  1. Industry bodies have raised concerns over the government’s proposed multiple rate structure for the GST regime
  2. Their view: The four proposed rates should eventually be collapsed into fewer rates
  3. Industry was cognisant of the fact that a single GST rate could not apply in a country like India and so a beginning must be made with multiple rates
  4. But the bulk of goods and services should fall within the standard rate of 18 per cent and only a few exceptions should be taxed at the higher rate of 26 per cent
  5. The govt should also roll out a clear roadmap for the early withdrawal of cess once the buoyancy in tax collection becomes adequate

‘Cess plan could mean 10 different GST rates’

  1. Proposal: The Finance Ministry has proposed differential cess rates under the GST regime to be levied over and above the highest tax rate of 26 per cent for such products
  2. Reason: To ensure that the tax incidence on products like cigarettes, tobacco products and luxury commodities doesn’t decline under the GST regime
  3. This could further complicate the GST tax structure
  4. The government has already proposed six different tax rates ranging from zero to 26 per cent, including a four per cent tax on gold, to the GST Council
  5. The GST Council is tasked with finalising the rates and other modalities for the new indirect tax regime

MP to become India’s supply hub post GST roll out: Jaitley

  1. Source: FM Arun Jaitley at the two-day 5th Global Investors Summit (GIS) organised by the Madhya Pradesh (MP) Government
  2. MP would become the country’s supply hub post the roll out of GST due to its central location in India
  3. MP which has been reporting over 10 per cent growth in the past few years is no more BIMARU as it has achieved all round growth in the past 13 years
  4. The acronym BIMARU was coined by economist Ashish Bose to give a distinct identity to poverty stricken states
  5. These states were – Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh

[op-ed snap] India is moving towards a flawed GST. Why?

  1. There were 2 underlying assumptions for a truly successful GST
  2. The new indirect tax would be levied at a single rate so as to reduce distortions based on rent-seeking behaviour
  3. And the tax rate would be low so as to minimize the regressive character of such indirect taxes
  4. Concern: It seems that India is moving to a multiplicity of rates, with a cess thrown in for good measure
  5. The stalemate in GST council regarding one single GST rate is worrisome
  6. Alternate: Need to relook at direct tax system. Lower direct tax collections mean there is pressure to collect more indirect taxes
  7. The year 2009 was an important milestone, when direct taxes overtook indirect taxes in the central kitty
  8. Higher direct tax collections will create fiscal space for India to experiment with a lower GST rate

[op-ed snap] GST’s implementation & philosophical fundas

  1. Context: The op-ed deliberates on the importance of keeping end goal in mind while hastening the process of GST implementation
  2. Augustus Caesar, a roman emperor credited with far fetching reforms used to have a motto – Festina Lente – Make Haste Slowly
  3. As management guru Stephen Covey insists, we must begin with the end in mind. What is the end we seek with GST’s implementation?
  4. What is the efficient GST structure? A One India framework comprising One Indirect Tax, One Rate, and One Registration.
  5. One issue on the levy of one rate which could possibly cause concern is the impact on inflation.
  6. This is because hitherto exempt items would now be subject to a significant tax burden, thus upwardly biasing inflation!
  7. The ongoing debate on a single rate is important because of government’s concern about the impact of GST on the poor
  8. What then should that one rate be? It is extremely difficult to compute the RNR for states given the lack of state-wise service tax data.
  9. RNR: Revenue neutral rate
  10. Conclusion: Let’s go with a rate of 12% and a provision for a review of these provisions after a specified period of time. Let us make haste slowly while implementing the GST

Centre moots 4 GST slabs

  1. The Centre has proposed a four-slab rate structure for the GST, ranging from zero to 26%, at a meeting of the GST Council
  2. The 26% tax will be on luxury items and 0% tax on items such as food, health and education services
  3. The rates will be finalised keeping in the mind the need to prevent inflation in consumer prices and protecting the revenues of both the Centre and the States
  4. Other decisions: The base year for calculating the revenue of a State would be 2015-16 and a rate of growth of 14% will be assumed
  5. The Centre would compensate States whose revenue collections fall lower than these levels

Centre, states to share talent pool in tax evasion fight

  1. News: The Central Board of Excise and Customs (CBEC) is planning a first-of-its-kind manpower-sharing exercise with states under the GST regime
  2. The blueprint drawn up by CBEC envisages employing state GST officials in central tax evasion and intelligence wings on deputation
  3. Similarly, it also proposes to send central tax officials to the state GST administration, subject to the latter’s approval
  4. If implemented successfully, it will further aid the move towards cooperative federalism
  5. However, it may prove to be a challenging task, given the current distrust between the tax authorities

Meet on SEZs to address tax concerns under GST regime

  1. Context: Concerns expressed by the SEZ sector about the lack of clarity in the proposed GST regime regarding upfront exemptions of taxes and duties for SEZ developers and units
  2. There is also diminished investor interest in SEZs
  3. Why? Concerns including those on the tax burden due to the FY’12 Union Budget imposing a 20.5% Minimum Alternate Tax (including cess) on SEZ developers and units as well as Dividend Distribution Tax (DDT) on developers
  4. The Commerce Ministry and the SEZ sector had sought exemption or at least reduction of MAT and DDT on SEZs

Industry pitches for GST rate of 18%

  1. The companies also sought time to switch over to the new regime
  2. States, which are seeking a higher tax rate of 20 per cent, asked companies if they would pass on low rates to consumers

What is GSTN?

  1. It is a non-profit entity that is building the information technology backbone for the goods and services tax (GST)
  2. It will store all details related to the relevant transactions
  3. Advantages: These analytics, based on data filed by millions of taxpayers, will help in plugging leakages
  4. Also identifying economic trends and ensure more focused economic-policymaking

GST platform to become analytics powerhouse

  1. News: The Goods and Services Tax Network (GSTN) will become a data analytics powerhouse in the months after the roll-out
  2. GSTN: It is the information technology backbone that will implement the new GST regime
  3. Once sufficient amount of data is generated, it will be able to generate analytics based on the requirements of various stakeholders

Benefits to hill, N-E states to continue under GST

  1. The 10-year tax holiday given in the form of area-based excise breaks for hill and northeast states will continue under the coming GST regime until the sunset date
  2. Two types of such schemes in operation: 1- Manufacturing units in J&K and the N-E get excise benefit by way of refunds; 2- those in Himachal and Uttarakhand get outright exemption
  3. J&K and NE scheme: Will continue till 2020 & 2017 respectively
  4. Himachal & Uttarakhand: Will continue till 2020 in many cases

Amended GST Bill gets Parliament green signal

  1. All 443 members present in the Lok Sabha (which had earlier passed it in May 2015) voted in favour of the bill as amended by the Rajya Sabha recently
  2. The amendment will have to be ratified by at least 16 States

Govt mulls pruning tax exemption list

  1. Context: Developments around the goods and services tax (GST)
  2. News: The Union government is planning to prune the list of excise duty exemptions from the current 300 to the states’ list of 90 items that are exempted from value added tax (VAT)
  3. About 200 items, including premium tea and coffee, ready-to-eat food and branded biscuits, could lose tax exemptions
  4. After the Rajya Sabha passed The GST Constitution (Amendment) Bill, the Centre and the states are working to make a uniform list of items that would exempt from the unified indirect tax

What’s the issue with an ideal GST rate?

  1. Even though the bill has been passed by RS, it’s going to go back to LS and then to state legislatures – post which it will become a law
  2. Then comes the important task of establishing a GST council which will have to set a GST rate!
  3. Wonder why there is a clamour for keeping the rate at 18%?
  4. Because the average rate of Organisation for Economic Co-operation and Development (OECD) group countries is 18.7%
  5. Pegging the rate above 18 percent would hurt the country’s competitiveness

Happy birthday GST!

  1. The Goods and Services Tax (GST) bill passed by an overwhelming majority
  2. The GST is the greatest tax reform ever attempted by India
  3. Started by AB Vajpayee, pursued by Manmohan Singh, and now brought to fruition by Narendra Modi
  4. We have written so much on GST that each of you reader must have become a domain authority of sorts. by now!
  5. Please go back and click and scroll down on the GST story to understand it in full

GST bill likely to be passed by RS. What’s next?

  1. Since the Bill was passed in the Lok Sabha last year, there have been major amendments to it
  2. So it will go back to the LS for approval
  3. Post that, the final draft will go to the state assemblies where the government needs at least 50% of the 29 states
  4. Once the Bill is ratified by the states, it will pave the way for the establishment of a GST council
  5. GST council is going to finalise the GST rate, extent of indirect taxes under subsumption etc.

GST: Two major hurdles cleared

  1. 1st hurdle: The Cabinet removed the contentious provision for a 1% additional tax levy by manufacturing States
  2. 2nd hurdle: A guarantee of 100% compensation to States for 5 years to make good any revenue loss incurred by them due to the introduction of GST
  3. Earlier the revenue loss was to be phased out in milestones of 100, 75 and 50%
  4. Concern: We still have to come to an agreement on what the GST rate should be and whether it should be made a part of the bill or not!

States reject GST rate proposed by Arvind Subramanian panel

  1. News: No consensus over the revenue-neutral rate (RNR), or the tax rate at which there will be no revenue loss to the states under a GST regime
  2. Funda of RNR? An accepted RNR will reduce the effective tax burden on the common man and also protect the existing revenues of the Union and the states
  3. The standard rates proposed by the Subramanian panel are below 18%
  4. States commissioned report by National Institute of Public Finance and Policy (NIPFP) suggests 26%
  5. Effective rate on consumer products today is about 30%

Government reaches out to Congress on GST Bill

  1. News: The government has reached out to the Congress for passage of the long-pending GST Bill in the Rajya Sabha where it does not have a majority
  2. Context: The GST, the most significant reform in indirect tax since Independence, is being held up in the Rajya Sabha because of stiff opposition by the Congress
  3. Congress demands: Ring fencing the GST rate so as not to burden the common man
  4. A constitutional cap on the GST rate
  5. Clarification from the government on taxability of various goods like petroleum, alcohol, tobacco and electricity
  6. Clarity on whether the GST would subsume various cesses including the Swachch Bharat cess

Amit Mitra named chairman of GST Committee

  1. News: West Bengal Finance Minister Amit Mitra is named the new chairman of the Empowered Committee of State Finance Ministers on GST
  2. Mr. Mitra is an economist, who has served as Secretary General of FICCI before joining politics in 2011
  3. Objective: The panel is tasked with framing rules for roll out of the ambitious GST regime

GST Bill: government may go for compromise

Instead of one fixed GST rate, govt. may go for a tax band of 18 to 24%.

  1. Of the 3 objections, Congress has on the GST Bill, it is becoming increasingly clear that government is prepared to address it.
  2. It is willing to scrap the 1 per cent additional origin tax proposed to help manufacturing states, to make up the losses they may incur due to GST.
  3. By promising to make up those losses for 5 years and set up a grievance redressal mechanism.
  4. On third issue, capping the GST, a committee headed by CEA Arvind Subramanian is preparing a report that could be out this week.
  5. Government feels that if there is a fixed rate in the constitutional amendment, any change in future will be difficult.

India still waiting for Economic Union?

  1. Finance minister Arun Jaitley has once again reiterated the need for free movement of goods across the country.
  2. The checkposts at state borders are an insult to united India.
  3. The best way to pull them down is through a flat goods and services tax (GST), as most economists realize.
  4. The technical issues are more or less settled.
  5. It is high time that the fractious political class closes a deal that all agree to but have been blocking for tactical reasons.

 

A slew of free-trade agreements are being signed across the world. The Indian government too is busy in a few negotiations of this type. That is needed as it will help India take advantage of global opportunities.

But even more important is the need for India to strike a free-trade deal with itself.

[op-ed snap] Circumventing the Rajya Sabha

  1. The govt is in policy paralysis right now because of the Opposition’s obstructionist approach in the Rajya Sabha.
  2. Govt does not have a majority in RS.
  3. So, the Finance Minister has indicated that most of the crucial bills which go to the Rajya Sabha be branded as money bills.
  4. Why? Rajya Sabha has little authority to prevent money bills from being rejected.
  5. But the Rajya Sabha should not be deprived of its legitimate rights through legislative stratagems.

What do you think? What are the moral and ethical dilemmas and what could be the political consequences of this manoeuvre?

Godrej for smooth passage of GST Bill

  1. Business community asks political parties to act with a sense of purpose in Parliament.
  2. He said that, though the current draft of the GST Bill was not perfect, it was very important to pass it.
  3. The trading community hopes to get a simplified cohesive business environment.
  4. The GST will support ease of doing business in the country and hopes to abolish colonial working of tax administration system.

Cabinet approves legislation for GST – So what changes now?

The NDA cabinet has accepted most of the amendments to the GST legislation proposed by a Rajya Sabha select committee.


 

  1. GST bill will be amended to say that states will be compensated ‘for 5 years’ rather than up to five years. Will the center compensate the states in full?
  2. The government has also accepted the panel’s recommendation that the additional 1% tax on supply of goods proposed in the bill be restricted to the inter-state sale of goods and not stock transfers by a company from one warehouse to another.
  3. It will now pass officially if there is support from two-thirds of the members in Lok Sabha and Rajya Sabha.
  4. Once this is done – a GST council—with representation from the centre and the states—will be constituted to help in drafting the GST law.

GST Bill proposals get approval from RS Select Committee

  1. Panel supported the compensation of states’ revenue losses for all 5 years and suggested that GST rate should not go beyond 20% as standard and 14% as reduced rates.
  2. It rejected the demand for decreasing Centre’s representation from 1/3rd to 1/4th in GST council.

New proposal in GST is highly ambiguous. Let us find out!

  1. Proposal of 1% interstate GST for manufacturing state has raised many questions – there is ambiguity whether it will be levied at the final consumption point or at every border that the product crosses.
  2. The new proposal says that the interstate movement of goods won’t be taxable if it is without a consideration. What does ‘consideration’ mean?
  3. It means that if stocks are transferred from say a plant in a state to a depot of the same company in another state, these would not invite tax.

Can GST pass in the Monsoon session?

  1. The Select Panel of Rajya Sabha accepted the demand of most of the states that they should be completely compensated for first five years.
  2. They also suggested that the GST rates should be moderate with as many goods under it as possible.
  3. GST council will decide on the applicability of GST on petroleum products and the GST zero net revenue rate.

Govt. firm on 1% additional tax over the GST. What for?

  1. 1% additional tax over the GST is to compensate for the revenue loss of manufacturing states who have made investments. It will be levied for 2 years.
  2. Remember – GST is a destination based tax system unlike origin based tax systems like VAT.

[cd explains] GST: Good for business, snag for federalism?

 


The GST is a tax reform that has been on the cards for more than a decade. In principle, it is the same as the Value-added Tax (VAT) — already adopted by all Indian States — but with a wider base. While the VAT — which replaced the sales tax — was imposed only on goods, the GST will be a VAT on goods and services.


  1. In the current tax regime, States tax sale of goods but not services.
  2. The Centre taxes manufacturing and services but not wholesale/retail trade.
  3. The GST is expected to usher in a uniform tax regime across India.

    Two Arguments given in favour of GST: 

  4. GST, by subsuming an array of indirect taxes under one rubric will –
    • simplify tax administration
    • improve compliance
    • eliminate economic distortions in production, trade, and consumption
  5. If we are giving credit for taxes paid on inputs at every stage of the supply chain and taxing only the final consumer – we will help control production costs.

According to the Finance Minister Arun Jaitley, the GST will add 2% to the national GDP.


A losing proposition for the States?

“All goods and services will be divided into certain categories. The rates will be fixed by category, and if I am a state, I cannot shift a commodity from a lower to a higher rate, or put it in the exempt category.”

According to the Constitution, the States have complete autonomy over levy of sales taxes, which, on average, accounted for 80% of their revenue. Now, the rates for both, the CGST and the SGST, will be fixed by the GST Council, where the chairman will be Fin Min!

Now, even though the Central GST will compensate the state’s fund, this will erode their autonomy to do things (cater to the interest groups themselves).

These & a few more, are some of the lingering questions.

Opposition defines a list of ‘5 non-negotiables’ on GST

  1. Opposition wants the government to write into the Bill that the GST rate will not exceed 18%
  2. The international norm is in the vicinity of 16%
  3. The additional 1% tax that has been allowed to manufacturing States “should go” as this would defeat the entire purpose of GST.
  4. Bring back the clause for an independent disputes settlement mechanism that was part of the UPA’s GST Bill introduced in 2011.
  5. Greater clarity on the compensation formula besides including duty on tobacco and electricity in GST.

New demand by States could hit the GST rollout

  1. With GST bill already being referred to Select Committee of Rajya Sabha, additional demands by states have added more worries for the government.
  2. Government had accepted 14th Finance Commission’s proposal and agreed to completely compensate states for any loss in revenue in first 3 years, 75% in fourth and by 50% in fifth.
  3. But the states want complete compensation for all 5 years.
  4. States also want to levy additional sales tax over and above GST for tobacco and its products.

After Oppn uproar, GST bill referred to Rajya Sabha’s Select Committee

Looks like this is not going to be that easy!


  1. Once passed by Parliament, the Bill will then need ratification of more than half of 29 states before scheduled roll out in April next year.
  2. GST was first mooted 12 years ago but couldn’t be approved as states feared curbs on their fiscal powers.
  3. The NDA government, which is woefully short of numbers in the Upper House, did not want to take any risk.

GST will economically integrate India: Jaitley

Citing agriculture as the weak link for India to achieve growth of 7-8%, he said agriculture and irrigation will get more resources.

GST Bill sails through Lok Sabha, Congress walkout helps

  1. Lok Sabha passed the 122nd Constitutional Amendment Bill seeking to replace the current tax structure with GST.
  2. However, the major challenge is in getting the bill passed in Rajya Sabha where the NDA lacks in adequate numbers.
  3. This Constitutional Amendment Bills need to be passed with 2/3rd majority.

Opposition stalls GST Bill, insists on relook by panel

  1. With several opposition parties raising concerns on a number of clauses, it is highly unlikely that the 122nd Constitutional Amendment Bill, which aims to give effect to GST, will get passed in this budget session of 2015.
  2. Major contention? Since GST is a destination based tax, it will result in loss of revenue for the producing states.
  3. Tamil Nadu’s ruling party – AIADMK – has a specific demand that since petroleum products constitute ~21% of state revenue, they should be taken out of the proposed GST ambit.


:( We are working on most probable questions. Do check back this section.







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