GST Bill an overview

This article was written by Maria Fatima, a student of Unity Degree College, Lucknow.

“Without GST, India won’t harness its own ‘common market.’ We’ve been in BREXIT mode without knowing it.”

– Indian business leader Anand Mahindra

The GST bill, which was recently passed by the Upper House of the Indian Parliament, is said to be the biggest tax reform in India’s indirect tax structure since the economy began to be opened up 25 years ago. The GST Constitutional Amendment Bill has to now go back to the Lok Sabha for ratification. Once it is approved by Parliament and 50 per cent of state legislatures, an era of new tax regime would usher in. The bill will convert the country into a unified market by replacing all indirect taxes with one tax. GST will do away with the complexity of multiple tax-rates which is a burden on the common man. On August 12, 2016,  Assam became the first state to ratify the constitutional amendment bill relating to the GST.

Dual GST means it will have a federal structure. The GST will basically have only three kinds of taxes – Central, state and another one called integrated GST to tackle inter-state transactions. During the passage of the Constitution (122nd Amendment) Bill, better known as GST Bill on Monday, Prime Minister Narendra Modi said GST was “crucial” for ending tax terrorism besides reducing corruption and black money. In the current tax regime, there is a cascading effect of “tax on tax” burden as there are no set offs for taxes paid on inputs and previous purchases. Presently, we had Value Added Tax(VAT) system both at the centre and state levels which have their own limitations. The central VAT does not extend to value addition by the distributive trade below the stage of manufacturing while the state VATs cover only the sales. Once GST comes into effect, all central- and state-level taxes and levies on all goods and services will be subsumed within an integrated tax having two components: a central GST and a state GST. Under this the end-consumer will bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages. There will be tax only on value addition at each stage, with the producer/seller at every stage able to set off his taxes against the central/state GST paid on his purchases.The GST will make no differentiation between ‘goods’ and ‘services’ as it is levied at each stage in the supply chain. The problem of double taxation was addressed by the apex court in the case of BSNL v. Union of India (2006 (3) SCC-1). It was held that certain activities cannot be regarded as both goods and services and therefore both service tax and VAT should not be applicable on the same set of transaction.

 The GST Council

The GST bill also seeks to set up a GST Council which would aim to develop a harmonized national market of goods and services. The council will consist of the union Finance Minister (chairman) and Minister of State incharge of Revenue; Minister in charge of Finance or Taxation, or any other Minister, nominated by each state. 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:

1. taxes, cesses, and surcharges to be subsumed under the GST;

 2. goods and services which may be subject to, or exempt from GST;

3. the threshold limit of turnover for application of GST;

4. rates of GST;

5. model GST laws, principles of levy,

6. 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;

7. and other related matters.
The GST councils can only make recommendations which are not binding. Each State/Centre while making their GST law would be free. States which may have agreed while making recommendations, may deviate from the same later on.

Central taxes which the GST will subsume are-

1.      Additional duties of Excise(textile and texile products as well as goods of special importance)

2.      Additional duties of Customs (commonly known as CVDs)

3.      Central Excise Duty

4.      Duties of Excise (medicinal and toilet preparations)

5.      Special Additional duties of Customs (SAD)

6.      Service Tax

7.       Cesses and surcharges in so far as they relate to supply of goods or services

State taxes that the GST will replace are-

1.      State VAT

2.      Central Sales Tax

3.      Purchase tax

4.      Luxury Tax

5.      Entry Tax

6.      Taxes on advertisements

7.      Taxes on lotteries, betting and gambling

8.      Entertain Tax( not levied by local bodies)

9.      State cesses and surcharges

THE LEVY OF GST

Both Parliament as well as the state legislatures will have the power to make laws on the taxation of goods and services. PARLIAMENT’S LAW will not override a state law on GST. The Centre would have an exclusive power  to levy, collect GST in the course of interstate trade or commerce, or imports. This will be known as Integrated GST (IGST).CENTRAL LAW will prescribe manner of sharing of IGST between Centre and states, based on GST Council’s views.

CHALLENGES TO THE INDIAN GST

The debate on the necessity of GST has been thrown open repeatedly because of the existence of heterogeneous State laws on VAT. For instance, the municipal corporations in Maharashtra depend on Octroi revenue for their sustenance and are seeking suitable compensation if GST replaces it. The system of Goods and Services Tax is prevalent in countries like Australia, Canada, Singapore, Malaysia etc. But it is argued that the best GST systems across the world use a single GST, while India has opted for a Dual GST system. It is predicted that the tax-rate under the GST would fall, but the number of assesses would increase by 5-6 times[1] . Moreover, states have been demanding that petroleum, alcohol and tobacco be kept out of the purview of GST. The GST rollout has therefore missed several deadlines because of lack of consensus among states over certain crucial issues on the proposed new tax regime.

[1] “GST in India”, businesssetup.in