GST Bill in a Nutshell.

GST: An all in one tax?

The lower house of the Parliament, the Lok Sabha recently passed The Constitution (122nd Amendment) Goods and Services Tax Bill, 2014. The Bill is with the standing committee currently and to become a law, it has to be passed by a two-third majority and ratified by at least half of the states.

The GST bill is hailed to be the single most important tax restructuring reform, yet it got lesser media coverage than the Salman Khan verdict. With this bill, a number of indirect taxes will be subsumed into one single tax called as Goods and Services Tax (GST). This will help in reducing distortions in the multi-layered tax system and help in increasing the revenue for the government. Indirect taxes applicable on goods and services such as Central Sales Tax (CST), Value Added Tax (VAT), Excise Duty, etc. will be subsumed by GST. This article will help you in understanding the modifications which this bill proposes to make, the pros and cons of GST and criticisms to the bill.

What are Indirect taxes?

This bill only affects indirect taxes. So what are these indirect taxes and how do they concern us? Indirect taxes are taxes which are applicable to goods and services, unlike direct taxes which are levied on individuals. The burden of paying this tax is shifted from the holder to the bearer.

 For example, when a customer purchases a product from a retail shop, the retail sales tax is paid by the customer and the retail shop acts as an intermediary and passes the tax to the respective authority. Presently, there are several indirect taxes which are applicable from manufacturing to the sale of the product. But GST would simplify this structure and only one tax would be applicable at the sales point. Further this tax would be divided into two categories; the Central GST (CGST) which would go to the Central Government and the State GST (SGST), payable to the State Government. For example, if a particular product is levied with 16% tax, of that 8% each will go to Centre and State governments. The GST Council will have the discretion to decide on this matter.

However, Integrated – GST (IGST), only the centre would collect and levy GST on supplies in the course of inter-state trade or commerce.

Advantages of GST Bill:

•       The GST will replace all indirect taxes such as CST, Octroi, Service Tax, VAT and Excise Duty.

•       It will benefit people as prices of products is likely to come down thus the demand of the product will increase which will help the consumers and businesses.

•       No more overlapping of taxes.

•       Uniform and stable tax system and an increase in country’s GDP.

•       The bill envisions the implementation of this structure through a fully automated platform with minimum human interference.

Disadvantages of GST Bill:

•       Critics claim that the CGST and the SGST are nothing but new names for Central Excise/ Service Tax, VAT and CST.

•       Alcohol is exempted from the purview of the GST. Further, the GST Council has to decide on petroleum crude, diesel, petrol, natural gas and aviation turbine fuel. This means that the state and the centre would continue to levy separate taxes on these products till GST Council decides on the rates.

•       States can levy an additional tax of 1% on inter-state supplies. This is against the principle of GST which aims to achieve a common market.

•       The implementation of GST requires a strong IT structure at a grass root level which at present, India lacks.

The GST Bill has been pending since 2004 and was passed by Lok Sabha on May 6th, 2015, after it was introduced with some minor changes. The States have opposed this bill because they fear losing autonomy and revenue. But the Bill has laid down a compensation package for a period of five years whereby the Centre will reimburse 100% of the revenue loss in first three years, 75% in the fourth year and 50% in the fifth year. States want alcohol and petrol products to be exempted from GST as half of the state’s revenue is generated by these products but the compensation clause will hopefully solve their worries.

This Bill will herald a simplified, uniform tax structure. It will also boost the economy and help in attracting foreign investors. Eventually, the costs of the products will go down, demand will increase and this is a win-win situation for both, consumers and businesses.

 But the bill has been criticised on the grounds that a proper roadmap has not been formulated for its implementation. The other criticism is that it is old wine in the new bottle. The Bill was first introduced by the UPA Government way back in 2004.The current government has only tweaked the compensation provision and added provisions relating to the GST Council. 

If the Bill is passed by Rajya Sabha and is ratified by at least half of the states then it will be rolled out on April 1^st, 2016.

Come what may, there is no running away from paying taxes. You either pay it rolled into one or as separate taxes but you can only hope that your hard earned money is not stashed into some unknown Swiss bank account!

References

Inballot – Should the Parliament pass GST Bill?

PRS India – The Constitution (122^nd Amendment) GST Bill

Hindustan Times – All you need to know about GST Bill.

-Ruchika Thakur

A The InfoMission Project Writer.