Goods and Service Tax (GST) simplified

GST simplified
GST simplified

Goods and Service Tax (GST) bill numbered to be the 122nd constitutional amendment bill, is one of the most ambitious reforms of the NDA government in order to promote ease of doing business and the flagship ‘Make in India’ program. The bill aims to collect various indirect taxes of the center as well as the state within its ambit and levy a single uniform tax on most of the goods and services. GST is levied and collected at each stage of sale or purchase of goods or services based on the input tax credit method. As India is a federal republic, GST would be implemented concurrently by the central government and by state governments.

Let’s go through GST Key Features

So, what exactly does this bill do? The GST bill, if passed in the winter session of the parliament will be a single uniform tax charged on all our goods and services. Currently, we pay VAT on goods and a separate 14% service tax on services.

The features of the GST are as follows:

  1. It will subsume various indirect taxes of the central government like:

(a) Service tax

(b) Excise duty (charged on every product that is manufactured in India)

(c) Countervailing duty

And of the state government like:

  • VAT
  • Luxury tax
  • Entertainment tax
  • Octroi tax
  • Entry tax

Note: However this list will be finalized by the GST council only after the bill is passed in the both the houses of the parliament.

  1. It will have two components: CGST (Central Goods and Service Tax) and SGST (State Goods and Service tax).
  2. The bill empowers the center to collect GST in case of inter-state trade, the proceeds of which will be divided between the center and state in accordance with the recommendation of the GST council.
  3. The GST council will be established by the President in accordance with the article 279-A of the constitution and will be chaired by the Finance Minister. It shall have the Minister of state (Finance) and the finance and taxation ministers of all the states as its members.
  4. The council will also decide on the final taxes to be subsumed, exemption list, the principle of distribution of the proceeds collected from inter-state trade, and for dispute settlement.
  5. Both the state and center will have concurrent power to amend the GST. However, the power to levy IGST (Integrated Goods and Service Tax) in case of inter-state trade shall lay with the center, only.
  6. The bill proposes an additional tax not exceeding 1% on inter-state trade in goods, to be levied and collected by the Centre to compensate the states for two years, or as recommended by the GST Council, for losses resulting from its implementation.
  7. Alcohol for human consumption has been kept outside the ambit of the GST. It will apply to five petroleum products at a later date.

What do you think is the need for GST

The main idea of coming up with such a reform is to do away with the cascading effect of various taxes that are charged at every stage of production and sale. The end result of so many taxes is that the product reaches the market at a much higher rate than it was intended to be. With the introduction of the GST, a single tax will be charged on the goods and services, bringing down the tax burden considerably. So, now when you go out to eat, you end up paying 12.5% VAT on food, 20% on beverages and above that an effective service tax of 5.6% on the total bill, after GST, you will only be paying the Goods and Service Tax and that will be all, thus, making it lighter on your pocket.

GST Pros and Cons

Just like a coin has two sides, GST too has both pros and cons. On one hand, it will cover both goods and services, reduce tax terrorism, help in business expansion and as per the finance ministry will even boost the GDP by 1-2%. On the other face of it, it is difficult to negotiate a revenue neutral rate which should neither prove to be too heavy for the consumer nor lead to losses for the state. Also, the government will have to come up with the required ICT (Information Communication Technology) to handle the logistics.

Reason for delay

Coming to the big question now: Why is the implementation being delayed? Introduction of GST in the Indian economy requires an amendment to the constitution which needs to be passed by both the houses of the parliament with at least two-third of the members voting in its favor and later has to be approved by at least fifteen state legislatures.

The bill stands passed in Lok Sabha where the NDA government is in majority but is stuck in the Rajya Sabha because it lacks the number there. The Government in July 2015 accepted the amendments suggested by the standing committee of the Rajya Sabha in order to win over the votes of TMC and BJD. The amendments approved included the decision to finalize the 1% tax over and above the GST rate to compensate the states for the losses incurred instead of the may compensate in the original bill. With the winter session less than ten days away, the NDA government is trying its best to get the bill through so that it can be successfully rolled out on the pre-decided date of 01.04.2016.