Explaining how Goods and Services Tax will benefit individuals
After a long 7-hour debate, Rajya Sabha passed long-awaited Goods and Services Tax (GST) Bill which will facilitate rollout of the Goods and Services Tax or GST in the country.
The 66-year-old Constitution, which gives power to Centre to levy taxes like excise, and empowers states to collect retail sales taxes, was amended though the 122nd Constitution Amendment Bill. The legislation was approved by the Upper House with 203 votes in favour and none against.
What is GST and how does it work
The GST is a single indirect tax for the whole nation, which will make India one unified common market. It 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.
Long journey of GST Bill
1. In 2003, the Kelkar Task Force on indirect tax had suggested a comprehensive Goods and Services Tax (GST) based on VAT principle.
2. A proposal to introduce a national GST by April 1, 2010, was first mooted in the Budget Speech for the financial year 2006-07.
3. Since the proposal involved reforms and 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 (EC) of State Finance Ministers.
4. Based on inputs from the Centre and states, the empowered committee released its first discussion paper on GST in November, 2009.
5. 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 Parliament for examination and report.
6. The Parliamentary Standing Committee submitted its report in August, 2013, to the Lok Sabha. Most of the recommendations made by the Empowered Committee and the Parliamentary Standing Committee were accepted and the draft Amendment Bill was suitably revised.
7. 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.
8. In June 2014, the draft Constitutional Amendment Bill was sent to the Empowered Committee after approval of the new government.
9. Based on a broad consensus reached with the Empowered Committee, the Cabinet on December 17, 2014, approved the proposal for introduction of a bill in Parliament for amending the Constitution to facilitate the introduction of GST in the country. The Bill was introduced in the Lok Sabha on December 19, 2014, and was passed by the Lok Sabha on May 6, 2015. It was then referred to the Select Committee of Rajya Sabha, which submitted its report on July 22, 2015.
10. Since then the bill has been stuck in a logjam as the government lacked majority in the Rajya Sabha and at the same time failed to reach a consensus on it with the major political parties, especially the Congress.
What are the benefits of GST?
The benefits of GST can be summarised as under:
For business and industry:
- Easy compliance
- Uniformity of tax rates and structures
- Removal of cascading
- Improved competitiveness
- Gain to manufacturers and exporters
For central and state governments:
- Simple and easy to administer
- Better controls on leakage
- Higher revenue efficiency
For the consumer:
- Single and transparent tax proportionate to the value of goods and services
- Relief in overall tax burden
Salient features of the GST:
1. GST will subsume central indirect taxes like excise duty, countervailing duty and service tax, as also state levies like value added tax, octroi and entry tax, luxury tax.
2. The final consumer will bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
3. As a measure of support for the states, petroleum products, alcohol for human consumption and tobacco have been kept out of the purview of the GST.
4. It will have two components - Central GST levied by the Centre and State GST levied by the states.
5. However, only the Centre may levy and collect GST on supplies in the course of inter-state trade or commerce. The tax collected would be divided between the Centre and the states in a manner to be provided by the Parliament, on the recommendations of the GST Council.
6. The GST Council is to consist of the Union Finance Minister as chairman, the MoS for Finance and the Finance Minister of each state.
GST will replace following Central taxes:
1. Central Excise Duty
2. Duties of Excise (medicinal and toilet preparations)
3. Additional Duties of Excise (goods of special importance)
4. Additional Duties of Excise (textiles and textile products)
5. Additional Duties of Customs (commonly known as CVD)
6. Special Additional Duty of Customs (SAD)
7. Service Tax
8. Cesses and surcharges in so far as they relate to supply of goods or services
State taxes that the GST will subsume
1. State VAT
2. Central Sales Tax
3. Purchase Tax
4. Luxury Tax
5. Entry Tax (all forms)
6. Entertainment Tax (not levied by local bodies)
7. Taxes on advertisements
8. Taxes on lotteries, betting and gambling
9. State cesses and surcharges