The long-pending GST Bill has been tabled in the Rajya Sabha. Here's your guide to India's biggest tax reform.
What is GST? Why is there a need for this?
GST is the Goods and Services Tax that is levied when a consumer buys a good or service. The Bill aims to eliminate the rippling effect of taxes on the production and distribution prices of goods and services. The current tax regime is full of indirect taxes that the GST aims to curb with a single tax, bringing it all under it.
India is adopting a dual GST, wherein the Central GST will be called CGST and state SGST. The main road block is the coordination among states. The Centre and states have to come to a consensus on uniform GST rates, inter-state transaction of goods and services, administrative efficiency and infrastructural preparedness to implement the new tax reform.
We currently have a multiple layered tax structure with states and Centre levying different taxes.
Taxes levied by the Centre include: Income tax, service tax, central sales tax, excise duty and security transaction tax.
Taxes that will die with the GST coming in:
Cenvat: Introduced in 2000, it is levied on the manufacture or production of movable or markeable goods in India - either as a percentage of transaction value or the MRP of the goods.
Octroi: A local tax collected by state government or city municipality on article brought into the city for local use.
Sales Tax (Centre & State): Levied on sale of a commodity that is produced or imported and sold for the first time. If sold subsequently without being processed further, the product is exempt from sales tax.
Excise Duty: Introduced in 1985, it is an indirect tax levied on goods which are manufactured in India and are meant for home consumption.
Advantages of GST for India:
Reduction of cost and time on movement of goods
Lower prices for many products
It may add 2% to 2.5% GDP growth
Increase in exports
- Union Finance Minister Arun Jaitley will move four amendments to the Constitution (122nd Amendment) Bill, meant for the roll-out of the GST in the Rajya Sabha, when it is taken up for consideration and passage.
- Union Minister Ananth Kumar on 2 August said leaders of various political parties have assured support to the government in the passage of the GST Bill. He said, "The honourable Prime Minster had in the all-party meeting and the NDA meeting prior to the beginning of this session urged all that the GST is in favour of the country, a win-win situation for all and extremely necessary for India's economic development."
- The GST Bill is expected to boost the nation's economy.
- The GST Bill was passed by the Lok Sabha in May 2015 but is stuck in the Rajya Sabha due to resistance from the Opposition.
- The government needs the support of two-third members of the Upper House to amend the Constitution to turn the GST into a law.
- The Bharatiya Janata Party (BJP) has issued a whip to all its members in the Rajya Sabha asking them to be present in the House for the next three days.
- The Business Advisory Committee of the Rajya Sabha has earmarked five-hour discussion for the Bill, which seeks to introduce a system for uniform taxation across the country.
- On 2 August, the Congress assured full support with regard to the GST Bill passage in the Rajya Sabha and said if the Centre doesn't come up with something new then this tax reform might get its nod.
- Congress leader Abhishek Manu Singhvi said: "The Congress has levied its full support in this regard. The details are yet to come; the Congress has nothing more to do with it. The government now has to work it out with the state governments. And if there are no more surprises in store then I think the Bill will get the needed nod tomorrow."
Changes made in the Bill
- The government has circulated official amendments to the GST Bill to drop 1% additional tax and include a definite provision in the statute for compensating states for revenue loss for 5 years.
- Under the modified provisions of GST Constitutional Amendment Bill circulated among the members, GST Council will be required to establish a mechanism for adjudication of disputes, which could arise between the Centre and states or among states themselves.
- The 2014 bill authorised GST Council to decide upon the modalities for resolution of disputes.
With these official amendments, the government has partially met the demands of the Congress party which has been blocking the Bill in the Rajya Sabha. One of the three demands of the Congress was to do away with the 1% additional manufacturing tax.
- On the demand for a Supreme Court judge-headed panel for resolving GST disputes, the official amendments say the GST Council will establish a mechanism for solving disputes.
With regard to the demand for putting a GST rate cap in the Constitution, the government has not mentioned anything in the official amendments.
-With inputs from agencies