Goods and Services Tax (India) Bill

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The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014
Emblem of India.svg
Parliament of India
A Bill further to amend the Constitution of India.
Territorial extent India
Enacted by Lok Sabha
Date passed 6 May 2015
Enacted by Rajya Sabha
Date passed pending
Legislative history
Bill introduced in the Lok Sabha The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014
Bill citation Bill No. 192 of 2014
Bill published on 19 December 2014
Introduced by Arun Jaitley
Status: Pending

The Goods and Service Tax Bill or GST Bill, officially known to be The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, would be a Value added Tax (VAT) to be implemented in India,[1] from April 2016.[2] GST stands for “Goods and Services Tax”, and is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. It will replace all indirect taxes levied on goods and services by the Indian Central and State governments. GST is a comprehensive value added tax on goods and services. It is levied and collected on value addition at each stage of sale or purchase of goods or supply of services based on input tax credit method but without State boundaries. There is no distinction between taxable goods and taxable services and they are taxed at a single rate in a supply chain of goods and services till the goods / services reach the consumer. The administrative power generally vests with a single authority to levy tax on goods and services. It is aimed at being comprehensive for most goods and services.[3] Exports will be zero-rated and imports will be levied the same taxes as domestic goods and services adhering to the destination principle. The introduction of Goods and Services Tax (GST) would be a very significant step in the field of indirect tax reforms in India.

  • By amalgamating a large number of Central and State taxes into a single tax, it would mitigate cascading or double taxation in a major way and pave the way for a common national market.
  • From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%.
  • Introduction of GST would also make Indian products competitive in the domestic and international markets.
  • Studies show that this would instantly spur economic growth.
  • Last but not the least, this tax, because of its transparent character, would be easier to administer.

[4] India is a federal republic, and the GST will thus be implemented concurrently by the central and state governments as the Central GST and the State GST respectively.[5]

Present Indian Indirect taxation structure and its Limitations[edit]

Presently India has a dual tax system for taxation of Goods And Services. The tax system is described by Central Taxes and State Taxes, which may be further described as EXCISE DUTY, SERVICE TAX, VAT AND CUSTOM DUTY. INDIA has VAT mechanism which was introduced in year 2005 which is working on input tax credit principle but this limited to Intra-State transaction. However this problem is not for service sector, as service tax is levied by central government.

Due to non-availability of tax credit for inter-state transactions of Goods consumer suffers double taxation burden of VAT. [6]


Concept of Goods and Service tax[edit]

Benefits of GST to various Stake holders For the Centre and the States

According to experts, by implementing the GST, India will gain $15 billion a year. This is because, it will promote more exports, create more employment opportunities and boost growth. It will divide the burden of tax between manufacturing and services.

For individuals and companies

In the GST system, taxes for both Centre and State will be collected at the point of sale. Both will be charged on the manufacturing cost. Individuals will be benefited by this as prices are likely to come down and lower prices mean more consumption, and more consumption means more production, thereby helping in the growth of the companies.

History in Parliament and Empowered Committee[edit]

In 2000, the Vajpayee Government started discussion on GST by setting up an empowered committee. The committee was headed by Asim Dasgupta, (Finance Minister, Government of West Bengal). It was given the task of designing the GST model and overseeing the IT back-end preparedness for its rollout.[7][8]

It is considered to be a major improvement over the pre-existing central excise duty at the national level and the sales tax system at the state level, the new tax will be a further significant breakthrough and the next logical step towards a comprehensive indirect tax reform in the country.[9]

Keeping this overall objective in view, an announcement[citation needed]was made by Palaniappan Chidambaram, the Union Finance Minister, during the central budget of 2007–2008 that it would be introduced from April 1, 2010 and that the Empowered Committee of State Finance Ministers, on his request, would work with the Central Government to prepare a road map for introduction of GST in India.

After this announcement, the Empowered Committee of State Finance Ministers decided to set up a Joint Working Group on May 10, 2007, with the Adviser to the Union Finance Minister and the Member-Secretary of Empowered Committee as co-convenors and the concerned Joint Secretaries of the Department of Revenue of Union Finance Ministry and all Finance Secretaries of the states as its members[citation needed]. The Joint Working Group, after intensive internal discussions as well as interaction with experts and representatives of Chambers of Commerce and Industry, submitted its report to the Empowered Committee on November 19, 2007.

This report was then discussed in detail in the meeting of Empowered Committee on November 28, 2007[citation needed]. On the basis of this discussion and the written observations of the states, certain modifications were made, and a final version of the views of Empowered Committee at that stage was prepared and was sent to the Government of India (April 30, 2008). The comments {Citation needed|date=November 2014}of the Government of India were received on December 12, 2008 and were duly considered by the Empowered Committee (December 16, 2008).

Legislative history[edit]

The Constitution (One Hundred and Twenty-second Amendment) Bill, 2014 was introduced in the Lok Sabha by Finance Minister Arun Jaitley on 19 December 2014. The Bill was passed by the House on 6 May 2015,[10] receiving 352 votes for and 37 against. All 37 no votes came from members of the AIADMK. The Indian National Congress, which opposed the Bill, walked out of the House before voting began. Although, the BJD and the CPI(M) had previously opposed the Bill, they cast votes in favour.[11] The Government attempted to move the Bill for consideration in the Rajya Sabha on 11 May 2015. However, members of the Opposition repeatedly stalled the proceedings of the House.[12] In order to appease the Opposition's demand for further scrutiny of the Bill, Jaitely moved a motion to refer the Bill to a Select Committee. The 21 member Committee is expected to give its report by the end of the Monsoon session.[13]

In 2000, the Vajpayee Government started discussion on GST by setting up an empowered committee. The committee was headed by Asim Dasgupta, (Finance Minister,Government of West Bengal). It was given the task of designing the GST model and overseeing the IT back-end preparedness for its rollout.It is considered to be a major improvement over the pre-existing central excise duty at the national level and the sales tax system at the state level, the new tax will be a further significant breakthrough and the next logical step towards a comprehensive indirect tax reform in the country. The Kelkar Task Force on implementation of the FRBM Act, 2003 had pointed out that although the indirect tax policy in India has been steadily progressing in the direction of VAT principle since 1986, the existing system of taxation of goods and services still suffers from many problems and had suggested a comprehensive Goods and Services Tax (GST) based on VAT principle. GST system is targeted to be a simple, transparent and efficient system of indirect taxation as has been adopted by over 130 countries around the world. This involves taxation of goods and services in an integrated manner as the blurring of line of demarcation between goods and services has made separate taxation of goods and services untenable. Introduction of an Goods and Services Tax (GST) to replace the existing multiple tax structures of Centre and State taxes is not only desirable but imperative in the emerging economic environment. Increasingly, services are used or consumed in production and distribution of goods and vice versa. Separate taxation of goods and services often requires splitting of transactions value into value of goods and services for taxation, which leads to greater complexities, administration and compliances costs. Integration of various Central and State taxes into a GST system would make it possible to give full credit for inputs taxes collected. GST, being a destination-based consumption tax based on VAT principle, would also greatly help in removing economic distortions caused by present complex tax structure and will help in development of a common national market. 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. 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). In April, 2008, the EC a report to the titled “A Model and Roadmap for Goods and Services Tax (GST) in India” containing broad recommendations about the structure and design of GST. In response to the report, the Department of Revenue made some suggestions to be incorporated in the design and structure of proposed GST. Based on inputs from GoI and States, The EC released its First Discussion Paper on Goods and Services Tax in India on the 10th of November, 2009 with the objective of generating a debate and obtaining inputs from all stakeholders. A dual GST module for the country has been proposed by the EC. This dual GST model has been accepted by centre. Under this model GST have two components viz. the Central GST to be levied and collected by the Centre and the State GST to be levied and collected by the respective States. Central Excise duty, additional excise duty, Service Tax, and additional duty of customs (equivalent to excise), State VAT, entertainment tax, taxes on lotteries, betting and gambling and entry tax (not levied by local bodies) would be subsumed within GST. 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. This was further trifurcated into three Sub-Working Groups to work separately on draft legislations required for GST, process/forms to be followed in GST regime and IT infrastructure development needed for smooth functioning of proposed GST. In addition, an Empowered Group for development of IT Systems required for Goods and Services Tax regime has been set up under the chairmanship of Dr. Nandan Nilekani. A draft of the Constitutional Amendment Bill has been prepared and has been sent to the EC for obtaining views of the States. The Goods and Service Tax Bill or GST Bill, officially known as The Constitution (122nd Amendment) Bill, 2014, would be a Value added Tax (VAT) to be implemented in India, from April 2016. GST stands for “Goods and Services Tax”, and is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. It will replace all indirect taxes levied on goods and services by the Indian Central and State governments. It is aimed at being comprehensive for most goods and services.[14]

Tax-Rate under the proposed GST[edit]

The tax-rate under the proposed GST would come down, but the number of assesses would increase by 5-6 times.[15] Although rates would come down, tax collection would go up due to increased buoyancy.[16] The government is working on a special IT platform for smooth implementation of the proposed Goods and Services Tax (GST). The IT special purpose vehicle (SPV) christened as GST N (Network) will be owned by three stakeholders—the centre, the states and the technology partner NSDL, then Central Board of Excise and Customs (CBEC) Chairman S Dutt Majumdar said while addressing a "National Conference on GST". On the possibility of rolling out GST, he said, "There was no need for alarm if GST was not rolled out in April 1, 2012."

Renewed GST concerns[edit]

With heterogeneous State laws on VAT, the debate on the necessity for a GST has been reignited[citation needed]. The best GST systems across the world use a single GST, while India has opted for a dual-GST model. Critics claim that CGST, SGST and IGST are nothing but new names for Central Excise/Service Tax, VAT and CST, and hence GST brings nothing new to the table. The concept of value-added has never been utilised in the levy of service, as the Delhi High Court is attempting to prove in the case of Home Solution Retail, while under Central Excise the focus is on defining and refining the definition of manufacture, instead of focusing on value additions. The Revenue can be very stubborn when it comes to refunds, as the Maharashtra Government proves, and software entities that applied for refunds on excess service tax paid on inputs discovered[citation needed].

The all-new Cenvat Credit Rules, 2014 do little to clarify eligibility for input credits, by using general terms such as “ any goods which have no relationship whatsoever with the manufacture of a final product” and “ services used primarily for personal use or consumption of any employee”[citation needed]. Before penning the GST Act and Rules, the Empowered Committee would do well to take a hard look at all the present laws that GST subsumes and their complexities. It could tempt them to rethink on the necessity to draft even the preamble [17]

This change in the tax structure is going to have a huge impact in the current supply chain of India. It is currently sub-optimal, and has been structured in such a fashion to avoid taxes. The supply chain tax structure of India can be broadly classified in the following categories. Threshold limit of traders, with turnover below 10 lakhs, need not register, is a concept brought from VAT system. This can cause ambiguity[citation needed]. The argument that small traders can not be handled by the system is not true. A country that can give a Unique ID to every citizen, can as well give registration service to small traders. They should not be eliminated from the Tax system. Even the compounding system, of charging 0.5% for the traders with below 50 lakhs turnover, can cause undesirable results[citation needed]. They also should not be eliminated from the tax system. It is not fair to restrict them from certain trade activities, such as selling to other states. The registered trader will have to face loss of input tax, if he buys either from threshold trader or compounded traders.

GST elsewhere[edit]

While countries such as Singapore and New Zealand tax virtually everything at a single rate[citation needed], Indonesia has five positive rates[citation needed], a zero rate and over 30 categories of exemptions. In China, GST applies only to goods and the provision of repairs[citation needed], replacement and processing services. It is only recoverable on goods used in the production process, and GST on fixed assets is not recoverable.

There is a separate business tax in the form of VAT. For example, when the GST was introduced in New Zealand in 1986[citation needed], it yielded revenues that were 45 per cent higher than anticipated, in large part due to improved compliance. It is more neutral and efficient structure could yield significant dividends to the economy in increased output and productivity. The GST in Canada replaced the federal manufacturers’ sales tax which was then levied at the rate of 60 per cent and was similar in design and structure as the CENVAT in India[citation needed]. It is estimated that this replacement resulted in an increase in potential GDP by 24 per cent, consisting of 12.4 per cent increase in national income from higher factor productivity and 50 per cent increase from a larger capital stock (due to elimination of tax cascading). The Canadian experience is suggestive of the potential benefits to the Indian economy. This means gains of about US$15 billion annually. This is indeed a staggering sum and suggests the need for energetic action to usher the GST regime at an early date. GST rates of some countries are given below.

Country Rate of GST[citation needed]
Australia 10%
France 19.6%
Canada 5%
Germany 19%
Japan 5%
Singapore 7%
Sweden 25%
India 27% [a]
New Zealand 15%
Pakistan 18%
Malaysia 6%
Denmark 25%
  1. ^ Proposal but Arun Jaitley in lok sabha said that 27% will be too high the actual figure will decided by GST council and it should around 18%

See also[edit]

95

References[edit]

  1. ^ http://goodsandservicetax.com/gst/showthread.php?79-Executive-Summary-(Report-of-Task-Force-on-Implementation-of-GST)&goto=nextnewest
  2. ^ http://www.taxmanagementindia.com/wnew/detail_rss_feed.asp?ID=1226
  3. ^ http://www.idtc.icai.org/download/BGM-on-GST-march-15.pdf
  4. ^ sites.google.com/site/gstbharatcoin/
  5. ^ http://www.123gst.com/introductory-resources/first-discussion-paper-on-goods-and-services-tax-in-india/frequently-asked-questions-faqs/09-dual-gst
  6. ^ http://www.gstseva.com
  7. ^ "Modi to quit as GST panel head today". The Telegraph (Calcutta, India). 16 June 2013. Retrieved 17 June 2013. 
  8. ^ "Post Sushil Modi, GST Committee will have to find new chief". The Times Of India. 16 June 2013. Retrieved 17 June 2013. 
  9. ^ "Modi in, Modi out: Splitting headache for UPA on GST". Firstpost. 17 June 2013. Retrieved 17 June 2013. 
  10. ^ http://www.prsindia.org/billtrack/the-constitution-122nd-amendment-gst-bill-2014-3505/
  11. ^ http://www.thehindu.com/news/national/lok-sabha-approves-gst-bill-paves-way-for-uniform-tax-regime/article7176308.ece
  12. ^ http://indianexpress.com/article/india/india-others/no-gst-bill-in-rajya-sabha-as-opposition-targets-nitin-gadkari-again/
  13. ^ http://www.firstpost.com/business/after-oppn-uproar-gst-bill-referred-to-rajya-sabha-select-committee-2240492.html
  14. ^ http://gstseva.com/gst/history/
  15. ^ http://businesssetup.in/blog/view?title=GST-in-India
  16. ^ http://profit.ndtv.com/news/show/gst-rates-to-be-in-range-of-16-20-cbec-162035?cp
  17. ^ http://www.thehindubusinessline.com/todays-paper/tp-others/tp-taxation/article2286103.ece

External links[edit]