Goods and Services Tax

India made a big leap forward on the road to reform as the legislation amending the Constitution to enable Goods and Services Tax (GST). It has become a Law with President Pranab Mukhejee giving his assent to the bill ratified by more than 50% State Assemblies subsequent to the Rajya Sabha and the Lok Sabha having voted to approve it. The 122nd Constitution Amendment (GST) Bill allows for introduction of GST that will subsume multiple indirect taxes, other than import duty, levied by Centre and States, creating one seamless National Market that will radically transform the $2 trillion economy and help boost GDP by up to 2 per cent point. This will also act as a transfer mechanism that would aid poorer consuming states. The one percent tax on interstate sales is to be dropped.

 

  • Goods and Services Tax (GST)

GST is one indirect tax for the whole nation, which will make India one unified common market.

The benefits of GST-

  • For business and industry :

o    Easy compliance

o    Uniformity of tax rates and structures

o    Removal of cascading

o    Improved competitiveness

o    Gain to manufacturers and exporters

  • For Central and State Governments :

o    Simple and easy to administer

o    Higher revenue efficiency

o    Better controls on leakage

  • For the consumer :

o    Single and transparent tax proportionate to the value of goods and services

o    Relief in overall tax burden

  • Taxes at the Centre and State level are being subsumed into GST

Ø  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.

Ø  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.

  • Major features of the proposed registration procedures under GST

i.  Existing Dealers : Existing VAT/Central Excise/Service Tax payers will not have to apply afresh for registration under GST.

ii.   New Dealers : Single application to be filed online for registration under GST.

iii.  The registration number will be PAN based and will serve the purpose for Centre and State.

iv.   Unified application to both tax authorities.

v.    Each dealer to be given unique ID GSTIN.

vi.   Deemed approval within three days.

vii.  Post registration verification in risk based cases only.

 

This sets the stage for setting up a GST Council, a body of Centre having one-third weight while States together having remaining two-third weight, with Union Finance Minister as its Chair. Decisions will have to be passed by three-fourth vote, implying need for consensus. The GST Council has the tough task of fixing the rates of tax, deciding the precise nature of the Central, the Integrated and the State GST Acts. The council will also lay guidelines for dispute settlements and tax compliances.

 

The Government is reportedly looking at Multiple Rates of GST at a band of 8% to 26%. Arvind Subramaniam panel has recommended four rates including a standard rate of 16 to 18%. The current tax to GDP ratio, combined of the Centre and the States, is about a modest at 16.5%, of which about 5.6% comes from direct taxes. The GST is expected to be revenue neutral as maximum revenue to be replaced is about 6.1% of GDP. While meeting all expenditure requirements GST will not hurt consumers. GST will widen tax base, reduce evasion and plug leakages. In the long run it will probably stabilise the tax rate and once effectively implemented, move them down. The broader the tax base, the lower its rate can be, and more comprehensive the data base. GST is likely to be rolled out on April 1, 2017.

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