Goods and Services Tax (India) Bill
|The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014|
|Parliament of India|
|A Bill further to amend the Constitution of India.|
|Enacted by||Lok Sabha|
|Date passed||6 May 2015|
|Enacted by||Rajya Sabha|
|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|
The Goods and Service Tax Bill or GST Bill, officially known as The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, proposes a national Value added Tax to be implemented in India from April 2016. "Goods and Services Tax" would be a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India, to replace taxes levied by the Central and State governments. GST would be levied and collected at each stage of sale or purchase of goods or services based on the input tax credit method, irrespective of State. Taxable goods and services are not distinguished from one another and are taxed at a single rate in a supply chain till the goods or services reach the consumer. Administrative responsibility would generally rest with a single authority to levy tax on goods and services.  Exports would be zero-rated and imports would 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 significant step in the reform of indirect taxation in India. Amalgamating several Central and State taxes into a single tax would mitigate cascading or double taxation, facilitating a common national market. The simplicity of the tax should lead to easier administration and enforcement.
Present indirect taxation structure
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 subdivided into Excise Duty, Service Tax, VAT and Customs Duty. In 2005 VAT was introduced for intra-state transactions, using the input tax credit principle.
History in Parliament and Empowered Committee
An announcementwas made by Palaniappan Chidambaram, the Union Finance Minister, during the central budget of 2007–2008 that GST 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. 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. 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 of the Government of India were received on December 12, 2008 and were duly considered by the Empowered Committee (December 16, 2008).
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, receiving 352 votes for and 37 against. All 37 no votes came from members of the AIADMK. The Indian National Congress party opposed the Bill and boycotted the vote, its members leaving the House before voting began. Although the BJD and the CPI(M) had previously opposed the Bill, they cast votes in favour. 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. 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.
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.
Tax-Rate under the proposed GST
The tax-rate under the proposed GST would come down, but the number of assesses would increase by 5-6 times. Although rates would come down, tax collection would go up due to increased buoyancy. 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
With heterogeneous State laws on VAT, the debate on the necessity for a GST has been reignited. 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.
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”. 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.
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. 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. 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.
While countries such as Singapore and New Zealand tax virtually everything at a single rate, Indonesia has five positive rates, a zero rate and over 30 categories of exemptions. In China, GST applies only to goods and the provision of repairs, 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, 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. 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|
- Value-added taxation in India
- Value added tax
- Goods and Services Tax (Australia)
- Goods and Services Tax (Canada)
- Goods and Services Tax (Hong Kong)
- Goods and Services Tax (New Zealand)
- Goods and Services Tax (Singapore)
- Value Added Tax (United Kingdom)
- "Modi to quit as GST panel head today". The Telegraph (Calcutta, India). 16 June 2013. Retrieved 17 June 2013.
- "Post Sushil Modi, GST Committee will have to find new chief". The Times Of India. 16 June 2013. Retrieved 17 June 2013.
- Mehra, Puja. "GST Bill sails through Lok Sabha, Congress walkout helps". The Hindu. Kasturi & Sons Ltd. Retrieved 24 August 2015.
- Lavi, Mohan. "Renewed GST concerns". The Hindu Business Line. Kasturi & Sons Ltd. Retrieved 24 August 2015.