GST Bill in India – One Step Towards Simplifying the Muddled Up Tax System
The proposed Goods and Services Tax (GST) is said to replace all indirect taxes levied on goods and services by the Government, both Central and States, once it is implemented. The GST will consolidate all State economies. It will be one of the biggest taxation reforms to take place in India once the Bill gets the official green signal. The basic idea is to create a single, cooperative and undivided Indian market to make the economy stronger and powerful. The GST will make a significant breakthrough paving way for an all-inclusive indirect tax reform in the country.
In the year 2000, for the first time the idea of initiating the GST was made by the then BJP Government under the leadership of Atal Behari Vajpayee. An empowered committee was also formed for that, headed by Asim Dasgupta (the then Finance Minister of the West Bengal Government). The committee was formed to design the model of the GST and at the same time inspect the preparation of the IT department for its rollout. In 2011, the previous United Progressive Alliance (UPA) Government also introduced a Constitution Amendment Bill to facilitate the introduction of the GST in the Lok Sabha but it was rejected by many States.
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What is GST?
The GST is basically an indirect tax that brings most of the taxes imposed on most goods and services, on manufacture, sale and consumption of goods and services, under a single domain at the national level. In the present system, taxes are levied separately on goods and services. The GST is a consolidated tax based on a uniform rate of tax fixed for both goods and services and it is payable at the final point of consumption. At each stage of sale or purchase in the supply chain, this tax is collected on value-added goods and services, through a tax credit mechanism.
The proposed model of GST and the rate
A dual GST system is planned to be implemented in India as proposed by the Empowered Committee under which the GST will be divided into two parts:
- State Goods and Services Tax (SGST)
- Central Goods and Services Tax (CGST)
Both SGST and CGST will be levied on the taxable value of a transaction. All goods and services, leaving aside a few, will be brought into the GST and there will be no difference between goods and services. The GST system will combine Central excise duty, additional excise duty, services tax, State VAT entertainment tax etc. under one banner.
The GST rate is expected to be around 14-16 per cent. After the combined GST rate is fixed, the States and the Centre will decide on the SGST and CGST rates. At present, 10 per cent is levied on services and the indirect taxes on most goods is around 20 per cent.
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Advantages of GST Bill
Introduction of a GST is very much essential in the emerging environment of the Indian economy.
- There is no doubt that in production and distribution of goods, services are increasingly used or consumed and vice versa. Separate taxes for goods and services, which is the present taxation system, requires division of transaction values into value of goods and services for taxation, leading to greater complications, administration, including compliances costs. In the GST system, when all the taxes are integrated, it would make possible the taxation burden to be split equitably between manufacturing and services.
- GST will be levied only at the final destination of consumption based on VAT principle and not at various points (from manufacturing to retail outlets). This will help in removing economic distortions and bring about development of a common national market.
- It will also help to build a transparent and corruption-free tax administration. Presently, a tax is levied on when a finished product moves out from a factory, which is paid by the manufacturer, and it is again levied at the retail outlet when sold.
Benefits of GST Bill
For the Centre and the States
According to experts, by implementing the GST, India will gain $15 billion a year. This is because, it will promote more exports, create more employment opportunities and boost growth. It will divide the burden of tax between manufacturing and services.
For individuals and companies
In the GST system, taxes for both Centre and State will be collected at the point of sale. Both will be charged on the manufacturing cost. Individuals will be benefited by this as prices are likely to come down and lower prices mean more consumption, and more consumption means more production, thereby helping in the growth of the companies.
Items not under GST
Alcohol, tobacco, petroleum products
Bottlenecks in the implementation of GST
Though the Government wants the GST Bill to be implemented by April 2016, there are certain bottlenecks which need to be taken care of before that:
- What preparations are needed at the level of Central and State Governments for implementing the GST?
- Whether the Government machinery is efficient enough for such an enormous change?
- Whether the tax-payers are ready for such a change?
- What will be the impact on the Government’s revenue?
- How will the manufacturers, traders and ultimate consumers be affected?
- Will GST help the small entrepreneurs and small traders?
Status of implementation of GST
To be fully viable by law in all the States, the GST Bill needs to be passed by a two-thirds majority in both Houses of Parliament and by the legislatures of half of the 29 States. In December 2014, Finance Minister Arun Jaitley introduced the constitutional amendment Bill of the GST in the Lok Sabha. He announced that the GST would be a major reform in India’s taxation system since 1947, which would reduce transaction costs for business and boost the economy.
Earlier, the Bill was rejected by a few States saying that it does not include the issues of compensation, entry tax and the tax on petroleum products. Jaitley while introducing the Bill said that all efforts have been taken to make sure that the States do not suffer any loss of revenue with the implementation of the GST. The States will receive Rs 11,000 crore this fiscal year so that it would compensate the losses suffered by them for decline in Central sales tax (CST) and subsequently financial assistance would be provided for a five-year period.
All said and done, the GST Bill which was conceived way back in the year 2000 has not seen the light of the day as yet. If everything goes well, most likely the Bill will be legislated by April 2016. According to a study by the National Council of Applied Economic Research (NCAER), full implementation of the GST could expand India’s growth of gross domestic product by 0.9-1.7 percentage points. By removing the system of multiple Central and State taxes, the GST can help in reducing taxation and filing costs and expand business profitability, thereby attracting investments and promoting GDP growth. Simplification of tax norms can help in improving tax compliance and increasing tax revenues.
Will the GST see the Light of Day in the Monsoon Session?
According to latest reports, the GST Bill is most likely to get passed in the ongoing Monsoon session of the Parliament. Main opposition Congress has agreed to a five-hour-long discussion on the proposed tax reform in Rajya Sabha. It is estimated that some kind of breakthrough may be at hand. The BJP-led NDA government and opposition party Congress have reached consensus on two clauses of the tax reform bill. The parliamentary debate would focus more on the technicalities of fixing a limit on the GST rate. The ruling government has committed to waiving the 1 per cent additional tax which was demanded by the Congress. According to sources, the government may be open to adding a proposal in the proposed Bill to set up a dispute resolution mechanism that would be chaired by the Union Finance Minister.
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