UPSC Preparation: Goods and Services Tax Bill - An Overview by Atul Kulkarni (AIR 180 CSE 2014)

GST : An overview

Introduction

The proposed GST is expected to streamline the indirect tax regime. It contains all indirect taxes levied on goods, including central and state-level taxes. Billed as an improvement on the VAT system, a uniform GST is expected to create a seamless national market.

Through a tax credit mechanism, this tax is collected on value-added goods and services at each stage of sale or purchase in the supply chain.

Not only it will replace Central Indirect taxes but will replace state levied indirect taxes too. Experts say that GST is likely to improve tax collections and boost India’s economic development by breaking tax barriers between States and integrating India through a uniform tax rate.

France was the first country to introduce it. In India, a dual GST is being proposed wherein a central goods and services tax (CGST) and a state goods and services tax (SGST) will be levied on the taxable value of a transaction.

Features of GST:

• It will be collected on VAT method ie tax at every stage of value addition.
• It will be imposed at an uniform rate @ 20% (Centre state share = 12 and 8 percent respectively)

TIMELINE of GST

2000	NDA setup empowered committee under Asim Das Gupta to design GST model.
2006-07	Then, Union Finance Minister Mr Chidambaram announced GST would be implemented from Apr 1 , 2010 and asked the empowered committee with state finance ministers to submit their views.
2009	1.Committee of Principle Secretaries of the states setup 2.Detailed Discussion Papers prepared 3. Tax Rate Proposal : World over mostly the GST rates are between 15-20% and the same is expected for India too
2011	Constitution 115th Amendment Bill introduced to enable state legislatures to frame laws for levying GST 1.It seeks to enable The President of India to setup within 60 days of passage of the bill a GST COUNCIL with Union Finance Minister as Chairperson & MoS for Revenue + Finance Ministers of all the states as members. GST Council will thus work on GST rates , exemption lists etc. 2.Setup a GST DISPUTES SETTLEMENT AUTHORITY : with a chairperson and 2 members. 3.It was referred to the Parliamentary Committee on Finance for examinations. It recommended that sections proposing a Dispute Settlement Authority to decide disputes arising among states and take action against the states should be removed from the Bill, and that the GST Council itself should evolve a mechanism to resolve the disputes. The committee also recommended that decisions in the GST Council be taken by voting and not by consensus. It said one-third weightage for central representatives and two-third weightage for state representatives may be provided, with the decision taken by the Council being passed with more than three-fourth votes of the representatives present. The quorum for holding meetings of the Council is proposed to be raised to half from one-third.
2011	GST NETWORK : IT strategy of GST led by the AADHAR team. Objective : Common portal for centre and states to enable electronic processing of registrations, returns , payments etc. NSDL (National Securities Depository ltd.) : technology partner to operate as IT backbone of GST.
2012	Finance ministry formed a committee of seven members under the chairmanship of Yogendra Garg, commissioner export, Mumbai, to frame a model legislation of GST for the Centre.
2013	The Goods and Services Tax Bill is likely to be taken up in the Parliament

Rational or Apprehensions behind the proposal:

1. The States feel that when 246A is there, then the Centre should not have to incorporate GST into the Union List. Clause 246A proposes additional powers to the Centre to tax sale of goods and for the States (to tax services).
2. At present, the Centre can tax services but not sale and distribution of goods. The States can now tax sale and distribution of goods but not services.
3. Including GST in the Union List will imply that in case of any disagreement between the Centre and the States, Parliament’s decisions will be overriding and binding on the States.
4. Administrative mechanism: In India, a merger between two government agencies is next to impossible, as long as appraisals and promotions are linked to seniority and regretfully, not performance. And integrating the revenue collection services of all states and an extremely powerful Central Service into one GST collection agent.
5.   Federal structure of the Indian constitution. Taking away the power of the states to tax items under the state list is tantamount to infringing upon the basic structure of the Constitution.

Why are some States against GST; will they lose money?

• The governments of Madhya Pradesh, Chhattisgarh and Tamil Nadu say that the “information technology systems and the administrative infrastructure will not be ready by April 2010 to implement GST”.
• States have sought assurances that their existing revenues will be protected.
• The central government has offered to compensate States in case of a loss in revenues.
• Some States fear that if the uniform tax rate is lower than their existing rates, it will hit their tax kitty. The government believes that dual GST will lead to better revenue collection for States.
•  However, backward and less-developed States could see a fall in tax collections. GST could see better revenue collection for some States as the consumption of goods and services will rise.

PROBLEMS IN THE CURRENT TAXATION SYSTEM GST PLANS TO IMPROVE

1. Ambiguous definitions- Taxation at Manufacturing Level is levied on goods manufactured or produced in India which gives rise to definitional issues as to what constitutes manufacturing.
2. Less Complexity-A strong single taxation system wherein various Central and State statutes will be subsumed into one comprehensive enactment. Process of judicial decisions would be speedy too with one statute covering all aspects of indirect taxes.
3. Exclusion of Services from state taxation- Services remain outside the scope of state taxation powers and GST would include tax on all such services where states cannot legislate.

What are the benefits of GST?

1.  Under GST, the taxation burden will be divided equitably between manufacturing and services, through a lower tax rate by increasing the tax base and minimizing exemptions.
2. GST will be is levied only at the destination point, and not at various points (from manufacturing to retail outlets).
3. Currently, a manufacturer needs to pay tax when a finished product moves out from a factory, and it is again taxed at the retail outlet when sold.
4. It is expected to help build a transparent and corruption-free tax administration.

How will it benefit the Centre and the States?

1. It is estimated that India will gain $15 billion a year by implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth.
2. It will divide the tax burden equitably between manufacturing and services.

What are the benefits of GST for individuals and companies

1. In the GST system, both Central and State taxes will be collected at the point of sale.
2. Both components (the Central and State GST) will be charged on the manufacturing cost. This will benefit individuals as prices are likely to come down. Lower prices will lead to more consumption, thereby helping companies.
3. Thus, the prices of commodities are expected to come down in the long run as dealers will be allowed to avail the CENVAT credit of Excise duty paid by Manufacturers and more over he will be allowed to avail the CENVAT credit of tax paid on services also. This passing of the benefits of reduced tax incidence to consumers by slashing the prices of goods will definitely reduce the prices.

Implications of GST on imports and exports

1.  Imports would be subject to GST.
2. Exports, however, will be zero-rated, meaning exporters of goods and services need not pay GST on their exports. GST paid by them on the procurement of goods and services will be refunded as similar to the present scenario.

References

1.  http://gstindia.com/
2. http://articles.economictimes.indiatimes.com/2013-08-13/news/41374977_1_services-tax-state-gst-goods-and-services
3. http://www.dnaindia.com/money/report-all-you-ever-wanted-to-know-about-gst-1265576
4. http://en.wikipedia.org/wiki/Goods_and_Services_Tax_(India)
5. http://centreright.in/2013/02/why-gst-is-not-a-good-idea/#.UmEVm9KBnPI
6. http://www.dnaindia.com/money/1265576/report-all-you-ever-wanted-to-know-about-gst 

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