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.
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