The GST Bill in Indian is now on the trends of the horizon. The Constitution Amendment 101 (One Hundredth and First) Bill to replace existing multiple indirect taxes in the country by uniform GST. Lok Sabha has already passed this Bill and likely it will be tabled for voting in the Rajya Sabha this week or next week. The GST Bill will officially roll out on or before July 1.
On Monday 27th March, finance minister Arun Jaitley introduced four GST bills in the Lok Sabha, that provide for a maximum tax rate of 40 percent. The new legislations also provide for the creation of an anti-profiteering authority.
On 29th of March 2017, the four GST Bills have passed in the Lok Sabha. The Central GST Bill, 2017; The Integrated GST Bill, 2017; The GST (Compensation to States) Bill, 2017; and The Union Territory GST Bill, 2017 were passed after negation of a host of amendments moved by the opposition parties.
Finance Minister Arun Jaitley, outside the Parliament, says subordinate legislations will be passed on March 31 meeting. He adds that he is reasonably optimistic about meeting July 1 rollout deadline. We will take the bills to the Rajya Sabha which will debate them next week.
As the GST bills were tabled as money bills, Rajya Sabha can only make recommendations and that too within 14 days of the bills being sent to the upper house
Replying to the seven-hour-long debate, Finance Minister Arun Jaitley said the GST, which will usher in a uniform indirect tax regime in the country, will make commodities “slightly cheaper”.
On the impact of GST on prices, Jaitley said: “Today you have a tax on tax, you have cascading effect. When all of that is removed, goods will become slightly cheaper”.
On why the Council has decided on multiple GST rates, Jaitley said one rate would be “highly regressive” as “Hawai chappal and BMW cannot be taxed at the same rate”.
He said currently food articles are not taxed and those will continue to be zero-rated under the GST. All other commodities would be fitted into the nearest tax bracket.
The GST Council has recommended a four-tier tax structure — 5, 12, 18 and 28 per cent. On top of the highest slab, a cess will be imposed on luxury and demerit goods to compensate the states for revenue loss in the first five years of GST implementation.
A four-tier GST tax slabs have been decided by the Finance ministry. Below are the details;
- Zero Tax rate: There won’t be any tax on almost 50 % of items in the Consumer Price Index basket, including grains used by the common man.
- 5% Tax slab: This is applicable on items of mass consumption used by common people.
- There would be two standard rates of 12% and 18% under the GST regime.
- All the items (especially luxury items) which are now taxed at around 30% will fall under 28% GST rate slab.
- An additional cess would also be levied on luxury cars, tobacco products & aerated drinks beside the highest tax rate (28%).
“The GST idea has created a grey area (with regard to a power of Centre and states). Taxes will be jointly imposed by Centre and states, there will be one tax,” Jaitley said, adding an expert committee has been appointed to remove bottlenecks relating to GST implementation.
Jaitley also dismissed the contention that GST would erode the power of Parliament and state legislatures to levy taxes. He said the taxation powers would continue to be with the legislatures and would be used to the recommendations of the GST Council.
However, the Central GST (CGST) law has pegged the peak rate at 20 per cent and a similar rate has been prescribed in the State GST (SGST) law, which takes the peak rate to 40 per cent which will come into force only in financial exigencies.
Jaitley said the cess would be transient for a period of 5 years so that the proceeds can be utilized to compensate the states.
Touted as the biggest taxation reform since Independence, GST will subsume central excise, service tax, VAT and other local levies to create a uniform market. GST is expected to boost GDP growth by about 2 per cent and check tax evasion.
Jaitley said that GST Council is working on the basis of consensus and slowly all items will come within the ambit of the new indirect tax regime, which will ensure a free flow of goods and services throughout the country.
“The hard work put in by GST Council members and officers bore fruits today in terms of 4 classic pieces of legislation passed by the Lok Sabha,” revenue secretary Hasmukh Adhia tweeted later.
Adhia termed the passage of the four laws as a “historic milestone in the economic history of this country”.
Replying to the discussion on the four bills, Jaitley said once the new tax regime is rolled out, a businessman will have to deal with only one assessing officer instead of multiple authorities at present.
The Bill will also improve tax compliance and ensure that assesses get input credit of the taxes paid.
To opposition questions as to why the government brought the legislations as ‘Money Bills’, Jaitley told that since 1950 all tax- related legislations were brought before Parliament as Money Bill.
With regard to centralized registration to banks, Jaitley said the GST Council will take a final decision in this regard.
Elaborating on the anti-profiteering provisions, he said these are meant to ensure that the benefits of reduction in tax rates are passed on to the consumers and there should be no “unjust enrichment”.
Responding to the concerns expressed by members on bringing agriculturists within the ambit of GST, he said the GST bill have provided a definition of agriculturists for the purpose of exemption from registration.
He further said most of the agricultural produce would continue to be zero-rated and there should be “no confusion” about it.
As regards Jammu and Kashmir, the finance minister said the law passed by Parliament will not apply to the state which will have to legislate its own law and integrate with the GST regime.
So, let us come back to the Goods and Services Tax in dee let us understand what is Goods and Services Tax (GST) in India.
- 1 What is Goods and Services Tax (101 Amendment Act), 2016
- 2 Current Indirect Tax Structure
- 3 GST Bill Structure
- 4 Effect of GST Bill on Indian Economy
- 5 Narender Modi’s Tweet on GST Bill
- 6 GST बिल पास होने पर सभी देशवासियों को बधाई | नया साल, नया कानून, नया भारत!
- 7 — Narendra Modi (@narendramodi) March 29, 2017
What is Goods and Services Tax (101 Amendment Act), 2016
The GST is a Value-added Tax (VAT) is proposed to be an extensive indirect tax collect on the manufacture, deal, and utilization of products and administrations at the national level. It will replace all indirect taxes levied on goods and services by the Indian Central and state governments.
The Model of this bill was set up by an empowered committee led by Atal Bihari Vajpayee administration in 2000 to streamline the GST.
Let me make it more reliable to you. The present structure of Indirect Taxes is very complex in India. There are so many types of taxes that are levied by the Central and State Governments on Goods & Services.
We have to pay ‘Entertainment Tax’ for watching a movie. We have to pay Value Added Tax (VAT) on purchasing goods & services. And there are Excise duties, Import Duties, Luxury Tax, Central Sales Tax, Service Tax. hmmm… 🙂
As of today some of these taxes are levied by the Central Government and some are by the State governments. How nice will it be if there is only one unified tax rate instead of all these taxes?
Let us understand – what is Goods and Services Tax and its importance. What are the benefits of GST Bill to Corporates, the common man, and end consumer? What are the advantages, disadvantages, and challenges?
Current Indirect Tax Structure
The current indirect tax structure is a major barrier to India’s economic growth fluently. Tax barriers in the form of CST, entry tax and restricted input tax credit have made the Indian market complex. Moreover, Complex multiple taxes increase the cost of compliance. So, in this manner, the introduction of GST is considered crucial for economic growth. GST will have quite a favorable impact on Indian economy. Some sectors will have the more favorable impact compared to others under the proposed GST. Take a look at the structure of Current Indirect Tax –
GST was first introduced during the 2007-08 budget session. On 17th December 2014, the current Union Cabinet ministry approved the proposal for introduction GST Constitutional Amendment Bill. On 19th of December 2014, the bill was presented on GST in Loksabha. The Bill will be tabled and taken up for discussion during the coming Budget session. The current central government is very determined to implement GST Constitutional Amendment Bill.
GST Bill Structure
GST is a tax that we need to pay for the supply of goods & services. Any person, who is providing or supplying goods and services is liable to charge GST.
GST is a consumption based tax/levy. It is based on the “Destination principle.” GST is applied on goods and services at the place where final/actual consumption happens.
GST is collected on value-added goods and services at each stage of sale or purchase in the supply chain. GST paid on the procurement of goods and services can be set off against that payable on the supply of goods or services.The manufacturer or wholesaler or retailer will pay the applicable GST rate but will claim back through tax credit mechanism.
But being the last person in the supply chain, the end consumer has to bear this tax and so, in many respects, GST is like a last point retail tax. GST is going to be collected at the point of Sale.
The GST is an indirect tax which means that the tax is passed on to the last stage wherein it is the customer of the goods and services who bears the tax. This is the case even today for all indirect taxes but the difference under the GST is that with streamlining of the multiple taxes the final cost to the customer will come out to be lower on the elimination of double charging in the system.
Let us understand the above supply chain of GST with an example:
The current tax structure does not allow a business person to take tax credits. There are a lot of chances that double taxation takes place at every step of the supply chain. This may set to change with the implementation of GST.
Indian Government is opting for Dual System GST. This system will have two components which will be known as
- Central Goods and Service Tax (CGST) and
- State Goods and Service Tax (SGST).
The current taxes like Excise duties, service tax, customs duty etc will be merged under CGST. The taxes like sales tax, entertainment tax, VAT and other state taxes will be included in SGST.
So, how is GST Levied? GST will be levied on the place of consumption of Goods and services. It can be levied on:
- Intra-state supply and consumption of goods & services
- Interstate movement of goods
- Import of Goods & Services
What is the applicable GST rate?
The rate (percentage) of GST is not yet decided. As mentioned in the above table, there might be CGST, SGST, and Integrated GST rates. It is also widely believed that there will be 2 or 3 rates based on the importance of goods. Like, the rates can be lower for essential goods and could be high for precious/luxury items.
Benefits of GST Bill implementation
- The tax structure will be made clean and simple
- The entire Indian market will be a unified market which may translate into lower business costs. It can facilitate seamless movement of goods across states and reduce the transaction costs of businesses.
- It is good for export-oriented businesses. Because it is not applied for goods/services which are exported out of India.
- In the long run, the lower tax burden could translate into lower prices on goods for consumers.
- The Suppliers, manufacturers, wholesalers and retailers are able to recover GST incurred on input costs as tax credits. This reduces the cost of doing business, thus enabling fairer prices for consumers.
- It can bring more transparency and better compliance.
- The number of departments (tax departments) will reduce which in turn may lead to less corruption
- More business entities will come under the tax system thus widening the tax base. This may lead to better and more tax revenue collections.
- Companies which are under unorganized sector will come under a tax regime.
Challenges for implementing Goods & Services Tax system
- The bill is yet to be tabled and passed in the Parliament
- To implement the bill (if cleared by the Parliament) there has to be lot changes at the administration level, Information Technology integration has to happen, sound IT infrastructure is needed, the state governments has to be compensated for the loss of revenues (if any) and much more.
- GST, being a consumption-based tax, states with higher consumption of goods and services will have better revenues. So, the cooperation from state governments would be one of the key factors for the successful implementation of GST
Since GST replaces many cascading taxes, the common man may benefit from implementing it. But it all depends on ‘what rate the GST is going to be fixed at?’ Also, Small Traders (based on Annual Business turnover) may be exempted from it.
France was the first country to introduce this system in 1954. Nearly 140 countries are following this tax system. GST could be the next biggest tax reform in India. This reform could be a continuing process until it is fully evolved. We need to wait few more months for more details on Goods & Services Tax system.
Effect of GST Bill on Indian Economy
The GST bill will allow India to expand trade and commerce. Removal of tax barriers to the introduction of uniform GST across the country will make India a common market leading to the economy of scale in production and efficiency in supply chain. This will significantly reduce the cost of indigenous goods thus it is indirectly promoting “Make in India”.
Okay, let us take it to the normal life. There is so many taxes levy on a product from raw material to the consumer. More will be the chain more will be the tax. The sectors which have long value chain from basic goods to the final consumption stage or the consumer such as pharma, automobiles and engineering goods will be the major beneficiaries of GST.
GST will increase ease of doing business in India. Integration of current multiple taxes into a single GST will significantly reduce the cost of tax and transaction cost.
Also, if you look at long term. The GST will probably increase the jobs because the transparency in the Tax structure will allow the foreign investors and big barons to invest in Indian without any hesitation.
Indian Government also introduces GST Network for paying the Goods and Services tax online. So, less will be the human intervention and less will be the corruption. Also, Built-in check on business transactions through seamless credit and return processing will reduce the scope for black money generation through the country.
This will enable the government to keep GST rates lower which may have a favorable impact on prices of goods in the medium term. The tax rate for services, however, may go up by 2 to 3% from the present level of 15%. The adverse impact of the rate increase on services will be partially neutralized by the availability of seamless input tax credit.
GST will also eliminate the scope of double taxation which is currently a topic of dispute. So, the GST will ease too many things.
While the GST will simplify tax structure, it will increase the burden of procedural and documentary compliance. The number of returns will increase significantly so also the extent of information.
GST will also have an impact on cash flow and working capital. Cash flow and working capital of business organizations which maintain a high inventory of goods in different states will be adversely affected as they will have to pay GST at full rate on stock transfer from one state to another. Currently, CST/VAT is payable on sale and not stock transfers.
It is also pertinent to note that all indirect taxes will not be subsumed in GST. Electricity duty, stamp duty, excise duty and VAT on alcoholic beverages, petroleum products like crude, natural gas, ETF, petrol, and diesel will not be subsumed in GST on its introduction. These taxes will form part of the cost of these goods when used as inputs in downstream products. Hence those sectors where these goods from significant input cost such as plastics and polymers, fertilizers, metals, telecom, air transport, real estate will not get the full benefit of GST.
The major beneficiary of GST would be sectors like FMCG, Pharma, Consumer Durables and Automobiles and warehousing and logistic industry.
High inflationary impact would be on telecom, banking, and financial services, air and road transport, construction and development of real estate,
While GST is eagerly awaited by the industry, the legal process to implement GST in India is quite long and complex. After the Constitution Amendment Bill is passed by the Parliament with a two-thirds majority, it will have to be passed by at least 15 states. Thereafter GST council has to be constituted which will recommend model GST law and GST rates. On such recommendation, GST Act and Rules have to be enacted by the Parliament and each state assembly. Then implementation date has to be notified. It is therefore quite important that the Constitution Amendment Bill is passed in the current Monsoon Session if GST is to be implemented during the tenure of present Parliament which ends during 2019.
Narender Modi’s Tweet on GST Bill
GST बिल पास होने पर सभी देशवासियों को बधाई | नया साल, नया कानून, नया भारत!
— Narendra Modi (@narendramodi) March 29, 2017
BJP says on GST Bill:
Compliment all members of parliament for this historic day Passage of 4 bills and implementation of GST will benefit the country
Congratulate all political parties for coming together to pass these bills.
Congress says on GST Bill:
This is a historic tax reform, to have a long-term structural impact on the economy. GST will help eco become a lot more progressive & transparent.
Execution, implementation of GST will be the key going forward.