Lok Sabha, Passes Goods and Services Tax (GST): Towards New Tax Regime, Lok Sabha, Passes Goods and Services Tax (GST): Towards New Tax Regime

With GST, all the indirect taxes will be subsumed into a one tax regime. This will alter the principles of fiscal federalism enshrined in our constitution. So it provides for constitutional amendment, with acceptance from states.

On 29 March 2017, Arun Jaitley said that, once the new regime is implemented, the harassment of businesses by different authorities will end and India will be one rate for one commodity throughout the country. GST will subsume a host of indirect taxes levied by the Centre and states, including excise duty, VAT, service tax, entry, luxury and entertainment levies. Finance Minister Arun Jaitley tabled the Bill on Monday (27 March, 2017) and is hopeful of its implementation from July 1.

Further, He said the GST Council, comprising Finance Ministers of Union and states, had agreed to take a decision on bringing real estate within the ambit of the new tax regime within a year of its rollout.

Furthermore, “The GST idea has created a grey area (with regard to power of Centre and states)… Taxes will be jointly imposed by Centre and states, there will be one tax,” he said, adding an expert committee has been appointed to remove bottlenecks relating to GST implementation.

With GST many manufacturing states will loose their revenues in short term . So by introducing in Rajyasabha i.e. the representative house of states, NDA is trying to gain legitimacy. Once passes in Rajyasabha where there is challenge , taking the bill through the lower house will be smooth.

Moreover, The GST bill is not a mere money bill, if it would have so it might have passed in UPA governments tenure itself,there would not have such a political chaos. GST is a constitutional amendment bill ( It will be called 122 constitutional amendment) so need be passed in RS also.

Opposition parties are not allowing to get it passed just for the political advantage only, because across the world it is history that whenever the GST has been implemented the inflation has increased for next couple of years and it take around 1-2 years to yield its benefits. Congress also wants GST bill to be passed but not now, somewhere in the 2017-18 so  that it can take its  political advantage in 2019 general election and enjoy the fruits thereafter.

But Govt is keen on passing it as soon as possible, we might see it passed in upcoming budget session so it will be able to meet revised date of roll over of 1 June 2016.

Cabinet approves four GST Bills

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has approved the following four GST related bills:

  1. The Central Goods and Services Tax Bill 2017 (The CGST Bill)
  2. The Integrated Goods and Services Tax Bill 2017 (The IGST Bill)
  3. The Union Territory Goods and Services Tax Bill 2017 (The UTGST Bill)
  4. The Goods and Services Tax (Compensation to the States) Bill 2017 (The Compensation Bill)

The above four Bills have been earlier approved by the GST Council after thorough, clause by clause, discussion over 12 meetings of the Council held in the last six months.

The CGST Bill makes provisions for levy and collection of tax on intra-state supply of goods or services for both by the Central Government. On the other hand, IGST Bill makes provisions for levy and collection of tax on inter-state supply of goods or services or both by the Central Government.

The UTGST Bill makes provisions for levy on collection of tax on intra-UT supply of goods and services in the Union Territories without legislature. Union Territory GST is akin to States Goods and Services Tax (SGST) which shall be levied and collected by the States/Union Territories on intra-state supply of goods or services or both.

The Compensation Bill provides for compensation to the states for loss of revenue arising on account of implementation of the goods and services tax for a period of five years as per section 18 of the Constitution (One Hundred and First Amendment) Act, 2016.

Background: The Government is committed to early introduction of GST, one of the biggest reforms, in the country as early as possible.  GST Council has decided 1st July as the date of commencement of GST.  The Finance Minister in his Budget Speech has mentioned that country-wide outreach efforts will be made to explain the provisions of GST to Trade and Industry.

What is GST? How does it work?

With the Source of PIB,
GST is one indirect tax for the whole nation, which will make India one unified common market. GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

What are the benefits of GST?

The benefits of GST can be summarized as under:

For business and industry point of view

1.Easy compliance:
A robust and comprehensive IT system would be the foundation of the GST regime in India. Therefore, all tax payer services such as registrations, returns, payments, etc. would be available to the taxpayers online, which would make compliance easy and transparent.

2.Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are common across the country, thereby increasing certainty and ease of doing business.

In other words, GST would make doing business in the country tax neutral, irrespective of the choice of place of doing business.

3.Removal of cascading: A system of seamless tax-credits throughout the value-chain, and across boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce hidden costs of doing business.

4.Improved competitiveness:Reduction in transaction costs of doing business would eventually lead to an improved competitiveness for the trade and industry.

5.Gain to manufacturers and exporters: The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost.

For Central and State Governments point of view

6.Simple and easy to administer: Multiple indirect taxes at the Central and State levels are being replaced by GST. Backed with a robust end-to-end IT system, GST would be simpler and easier to administer than all other indirect taxes of the Centre and State levied so far.

7.Better controls on leakage: GST will result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of GST that would incentivize tax compliance by traders.

8.Higher revenue efficiency: GST is expected to decrease the cost of collection of tax revenues of the Government, and will therefore, lead to higher revenue efficiency.

For the consumer point of view

9.Single and transparent tax proportionate to the value of goods and services: Due to multiple indirect taxes being levied by the Centre and State, with incomplete or no input tax credits available at progressive stages of value addition, the cost of most goods and services in the country today are laden with many hidden taxes. Under GST, there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer.

10.Relief in overall tax burden:Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit consumers.

Which taxes at the Centre and State level are being subsumed into GST?

The Lok Sabha on 29 march, 2017 passed Goods and Services Tax (GST) bill which would bring the country under single tax net for the first time. The historic tax reform came a step closer to meet its July 1 target of rollout, with the Lok Sabha approving four supplementary legislations. The legislations were passed after negation of a host of amendments moved by the opposition parties.

At the Central level, the following taxes are being subsumed:

A. Central Excise Duty,

B. Additional Excise Duty,

C. Service Tax,

D. Additional Customs Duty commonly known as Countervailing Duty, and

E. Special Additional Duty of Customs.

At the State level, the following taxes are being subsumed:

A. Subsuming of State Value Added Tax/Sales Tax,

B. Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States),

C. Octroi and Entry tax,

D. Purchase Tax,

E. Luxury tax, and

F. Taxes on lottery, betting and gambling.

What are the major chronological events that have led to the introduction of GST?

GST is being introduced in the country after a 13 year long journey since it was first discussed in the report of the Kelkar Task Force on indirect taxes. A brief chronology outlining the major milestones on the proposal for introduction of GST in India is as follows:

A. In 2003, the Kelkar Task Force on indirect tax had suggested a comprehensive Goods and Services Tax (GST) based on VAT principle.

B. A proposal to introduce a National level Goods and Services Tax (GST) by April 1, 2010 was first mooted in the Budget Speech for the financial year 2006-07.

C. Since the proposal involved reform/ restructuring of not only indirect taxes levied by the Centre but also the States, the responsibility of preparing a Design and Road Map for the implementation of GST was assigned to the Empowered Committee of State Finance Ministers (EC).

D. Based on inputs from Govt of India and States, the EC released its First Discussion Paper on Goods and Services Tax in India in November, 2009.

E. In order to take the GST related work further, a Joint Working Group consisting of officers from Central as well as State Government was constituted in September, 2009.

F. In order to amend the Constitution to enable introduction of GST, the Constitution (115th Amendment) Bill was introduced in the Lok Sabha in March 2011. As per the prescribed procedure, the Bill was referred to the Standing Committee on Finance of the Parliament for examination and report.

G. Meanwhile, in pursuance of the decision taken in a meeting between the Union Finance Minister and the Empowered Committee of State Finance Ministers on 8th November, 2012, a ‘Committee on GST Design’, consisting of the officials of the Government of India, State Governments and the Empowered Committee was constituted.

H. This Committee did a detailed discussion on GST design including the Constitution (115th) Amendment Bill and submitted its report in January, 2013. Based on this Report, the EC recommended certain changes in the Constitution Amendment Bill in their meeting at Bhubaneswar in January 2013.

I. The Empowered Committee in the Bhubaneswar meeting also decided to constitute three committees of officers to discuss and report on various aspects of GST as follows:-

(a) Committee on Place of Supply Rules and Revenue Neutral Rates;

(b) Committee on dual control, threshold and exemptions;

(c) Committee on IGST and GST on imports.

J. The Parliamentary Standing Committee submitted its Report in August, 2013 to the Lok Sabha. The recommendations of the Empowered Committee and the recommendations of the Parliamentary Standing Committee were examined in the Ministry in consultation with the Legislative Department. Most of the recommendations made by the Empowered Committee and the Parliamentary Standing Committee were accepted and the draft Amendment Bill was suitably revised.

K. The final draft Constitutional Amendment Bill incorporating the above stated changes were sent to the Empowered Committee for consideration in September 2013.

L. The EC once again made certain recommendations on the Bill after its meeting in Shillong in November 2013. Certain recommendations of the Empowered Committee were incorporated in the draft Constitution (115th Amendment) Bill. The revised draft was sent for consideration of the Empowered Committee in March, 2014.

M. The 115th Constitutional (Amendment) Bill, 2011, for the introduction of GST introduced in the Lok Sabha in March 2011 lapsed with the dissolution of the 15th Lok Sabha.

N. In June 2014, the draft Constitution Amendment Bill was sent to the Empowered Committee after approval of the new Government.

O. Based on a broad consensus reached with the Empowered Committee on the contours of the Bill, the Cabinet on 17.12.2014 approved the proposal for introduction of a Bill in the Parliament for amending the Constitution of India to facilitate the introduction of Goods and Services Tax (GST) in the country. The Bill was introduced in the Lok Sabha on 19.12.2014, and was passed by the Lok Sabha on 06.05.2015. It was then referred to the Select Committee of Rajya Sabha, which submitted its report on 22.07.2015.

How would GST be administered in India?

Both Centre and States will simultaneously levy GST across the value chain. Tax will be levied on every supply of goods and services. Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State. The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output. No cross utilization of credit would be permitted.

Will cross utilization of credits between goods and services be allowed under GST regime?

Cross utilization of credit of CGST between goods and services would be allowed. Similarly, the facility of cross utilization of credit will be available in case of SGST. However, the cross utilization of CGST and SGST would not be allowed except in the case of inter-State supply of goods and services under the IGST model which is explained in answer to the next question.

How will be Inter-State Transactions of Goods and Services be taxed under GST in terms of IGST method?

In case of inter-State transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods and services under Article 269A (1) of the Constitution. The IGST would roughly be equal to CGST plus SGST. The IGST mechanism has been designed to ensure seamless flow of input tax credit from one State to another. The inter-State seller would pay IGST on the sale of his goods to the Central Government after adjusting credit of IGST, CGST and SGST on his purchases (in that order). The exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The importing dealer will claim credit of IGST while discharging his output tax liability (both CGST and SGST) in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST. Since GST is a destination-based tax, all SGST on the final product will ordinarily accrue to the consuming State.

What are the major features of the proposed payment procedures under GST?

On the impact of GST on prices, Jaitley said: “Today you have tax on tax, you have cascading effect. When all of that is removed, goods will become slightly cheaper”. The Parliament had almost a seven-hour long discussion on the GST. After the passing of all the four bills, passage for a state GST will be needed in all state assemblies in order to implement the unified tax regime.

Know More About Recent GST Bill

Here are all the key developments related to the flagship bill:

Lok Sabha passes all four bills: Central GST, Integrated GST Bills, Union Territory GST and the GST (Compensation to the States) Bill 2017

  1. 05:28 PM: The Finance Bill with amendments passed in Rajya Sabha

  2. Finance Minister Arun Jaitley said that tax rates will be kept at the current levels so as not to have any inflationary impact.

  3. The aim of the GST Council is to decide everything relating to the tax structure with consensus and this is for the first time that such an arrangement has been made, based on the principle of shared sovereignty of both the Centre and the state governments: Arun Jaitley

  4. These are revolutionary bills which will benefit all. States have pooled in their sovereignty into the GST council, and Centre has done the same: Arun Jaitley

  5. The Central GST or CGST will give powers to the Centre to levy tax after levies of excise, service tax and additional customs duty is subsumed: Arun Jaitley

  6. 4:10 PM: In a response to Kapil Sibal, Arun Jaitley said that they are assuming property transactions and election happens only in cheques. Calls it a “wrong hypothesis”.

  7. 4:00 PM: Arun Jaitley speaks about Finance Bill in Rajya Sabha

  8. 3:45 PM: “The Finance Minister has forced me to do something that I didn’t want to do. He has forced me to get an Aadhaar number,” says Jairam Ramesh of Congress in Rajya Sabha

  9. 3:42 PM: Speaker tells Mulayam Singh Yadav, “Please come back to GST.”

  10. 3:35 PM: You have such a huge mandate in Uttar Pradesh, you have to deliver. If you don’t deliver, people of UP will show you: Mulayam Singh Yadav

  11. 3:40 PM: Will there be any law to stop suicides due to poverty, asks Mulayam Singh

  12. 3:40 PM: Samajwadi leader, Mulayam Singh Yadav speaks in Lok Sabha

  13. 3:25 PM: India is an agrarian economy, GST Bill doesn’t affect agriculture, but cost of agricultural inputs will go up: AIADMK’s TG Venkatesh Babu

  14. 3:10 PM: CPI-M lawmaker Mohammad Salim speaking in Lok Sabha on the GST Bill

  15. 3:00 PM: Digvijaya Singh brings up the issue of Aadhaar details of MS Dhoni being made public in Rajya Sabha

  16.  2:45 PM: K V Reddy of TRS says the GST bill is a mixed bag

  17. 2:40 PM: We are sitting here to make history and I am happy to be a part of this historic occasion: Jaidev Galla, TDP MP from Guntur.

  18. 2:30 PM: Shiv Sena MP from Amravati is speaking now. He says the party supports the Centre on GST. He asks why alcohol and petroleum products have been excluded from the GST.

  19. 2:08 PM: Finance Bill is being discussed in Rajya Sabha

  20. 2:00 PM: Kalyan Banerjee (AITC): Mamata Banerjee had accepted GST in 2009. West Bengal wanted an integrated tax regime.

  21. 1:13 PM: Rajya Sabha adjourned till 2 PM for lunch; Discussion on Finance Bill in the next session.

  22. 1:09 PM: Cong leader Moily says in the Lok Sabha, “Tax payer will have to file multiple forms, multiple returns. Finance Minister must clarify how govt will simplify compliance”.

  23. 1:06 PM: This is a very serious matter, just don’t take shelter under constitutional amendment: says Veerappa Moily, Congress in Lok Sabha

  24. 1:03 PM: Cong leader Moily says, “It is not clear how the categorisation of the 90:10 divide for companies with turnover below Rs. 1.5 crore will be done. Categorisation of goods also needs to be done. For example, is Kitkat a chocolate or a biscuit? Is coconut oil considered as hair oil or cooking oil?”

  25. 1:00 PM: What you have brought today is not a game changer but only a baby step: Veerappa Moily,Congress in Lok Sabha

  26. 12:59 PM: There are too many tax rates one-nation, one-tax regime is only a myth, says Moily

  27. 12:57 PM: GST is unprecedented, transformative measure: Moily

  28. 12:55 PM: Entry tax is not clear with respect to merger of taxes with GST, says Veerappa Moily

  29. 12:52 PM: The anti-profiteering clause of GST is far too draconian: Congress’ Veerappa Moily

  30. 12:50 PM: Congress leader Moily says there is no clarity on excise free zone under GST regime

  31. 12:48 PM: This game changer law was envisioned by the UPA government, somehow opposition parties at that time halted it: Veerappa Moily

  32. 12:40 PM: Congress leader Veerappa Moily begins the debate in Lok Sabha

  33. 12:39 PM: GST council is India’s first federal institution where sovereignty of Centre and state has been pooled, says Arun Jaitley.

A significant step has been taken, Parliament has accepted the draft approved by the GST Council as it is. We are seeing history in the making. We are going to see a new system of taxation. We seem to be well within time. I would say this is an important step forward. I am very optimistic of meeting the deadline. Much needs to be done between now and July 1. “The rollout of GST within a time span of the next three months seems a Herculean task, keeping in mind the paradigm shift in indirect taxation in India,” said Bipin Sapra, partner, EY. “Thus, both the government and industry have a lot to do and miles to go before the GST can be implemented in right earnest.”

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