Goods and Services Tax (India) Bill

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The Goods and Services 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,[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. It is aimed at being comprehensive for most goods and services.

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.[3] Exports will be zero-rated and imports will be levied the same taxes as domestic goods and services adhering to the destination principle.

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.[4][5]

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.[6]

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]of the Government of India were received on December 12, 2008 and were duly considered by the Empowered Committee (December 16, 2008).

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.[7] Although rates would come down, tax collection would go up due to increased buoyancy.[8] 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."

Legislative history[edit]

The Bill was introduced in 2014 to the lower house of the Parliament of India by Finance Minster Arun Jaitley.[9]

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%

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 [10]

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.

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