By Piyush Jain, Rajiv Gandhi National University of Law, Punjab.
Goods and Services Tax (GST), which is considered the most significant tax reform since independence, proposes to subsume a majority of the indirect taxes prevailing in India and will change the way business is done. It will bring about a structural change in the current indirect taxation system by propagating an ideal consumption-based indirect tax system. The dual GST proposed to be introduced is expected to expand the tax bases and simplify and harmonize the conception tax systems presently levied at both central and state levels. The Central VAT (CENVAT) levied at present, has a narrow base and multiple rates. It is levied on goods at the production stage, and value added in subsequent stages is not included in the base.
In the proposed Central GST, the base will be expanded by merging the service tax with the CENVAT, extended to wholesale and retail levels and simplified to have only one or two rates. The merger of service tax in GST helps to ensure more comprehensive input tax credit and relieve the tax on exports. The State GST will expand the base of the prevailing VAT to include services. The tax will be simplified by merging a number of other taxes such as motor vehicles tax, goods and passengers’ tax, entertainment tax, electricity duty and entry taxes including those levied in lieu of octroi. Harmonization of tax rates and administration across states would bring about the significant gain in minimizing distortions and reducing the compliance cost for taxpayers. Goods and Services Tax (GST) remains the most awaited tax reform of the nation. Though, the first discussion paper on GST was issued in 2009, this reform is yet to materialize. The GST Bill proposes a ‘Dual GST structure’ consisting of Central GST (CGST) and State GST (SGST) levied on intra-state transactions, and Integrated GST (IGST) which is a combination of CGST and SGST, levied on inter-state transactions including imports. Under the GST regime, GST paid on procurement will be allowed to be set off against the GST liability on the output.
However, there have been recent positive developments on the proposed GST reform, which gives us reason to believe that it could become a reality from 1 April 2016. Since November 2014, the trending discussion on GST is mostly about the Constitutional Amendment Bill.
The government is determined to roll out GST on the target date of 1 April 2016. After the Lok Sabha (lower house of Parliament) passed the GST Bill, the government has proactively been showcasing its preparedness through Select Committee meetings, industry engagement activities, and by setting up committees to gauge industry views on GST; however, these efforts will be known to the public only after the bill is approved by the Rajya Sabha (upper house of Parliament).
Some key recent developments with respect to GST are as follows:
Empowered Committee Reports
A majority of the work on GST has, reportedly, already been concluded or is in its final stage. At present, various committees and sub-committees have been formed under the Empowered Committee (EC) of State Finance Ministers to provide detailed reports on key issues including Place of Supply Rules, inter-state GST, thresholds, the GST model, etc. Most of these committees have submitted their final report to the EC.
Contentious Issues For States
Though many of the contentious issues of the states have already been addressed by the GST Bill, a consensus has not been reached on the following:
Compensation to states:
The central government has planned to provide Central Sales Tax (CST) compensation in a staggered manner over five years (100% for three years, 75% in the fourth year and 50% in the fifth year), while states are demanding 100% compensation for five years. In this regard, the Chairman of the EC, K M Mani, has reportedly stated that most of the states welcome GST; however, deliberations with respect to CST compensation are in progress.
Subsuming of taxes:
In an EC meeting held on 4 June 2015, some states insisted that Entry Tax and Purchase Tax should be outside the purview of GST and if at all the Purchase Tax is to be subsumed, the government should compensate such losses for at least 15 years.
Select Committee Of The Rajya Sabha
The GST Bill is presently under the consideration of a Select Committee of the Rajya Sabha. The Committee has been instructed to present their report to the Rajya Sabha by the end of the first week of the upcoming monsoon session of Parliament (July 2015). The Select Committee has been deliberating on issues such as an additional 1% tax for manufacturing states, GST dispute redressal mechanism, etc. The Committee will be inviting various state representatives, trade associations and other stakeholder associations to share their views and recommend amendments if necessary.
A senior opposition leader, reportedly, stated that the opposition is not against GST but insisted that the new elements of the Bill must be reviewed by the Select Committee before clearing the Bill. Thus, the opposition parties should be taken on board to ensure that the GST Bill is approved by the Rajya Sabha as well.
Two Committees Formed By The Government To Facilitate GST Implementation
On 17 June 2015, the Finance Minister, Arun Jaitley, approved the formation of two committees: one to monitor the progress of IT preparedness for GST and the other to suggest possible tax rates. A Steering Committee under the Co-Chairmanship of the Additional Secretary of the Department of Revenue and the Member Secretary of the EC has been formed to monitor the IT preparedness of GSTN/CBEC/tax authorities, the finalisation of reports of all the sub-committees on different aspects related to the mechanics of GST, and drafting the CGST, IGST and SGST laws/rules. It will also oversee the progress of consultations with various stakeholders such as trade and industry associations and ensure adequate training to government officers for administering GST. Another committee has been formed under the Chairmanship of the Chief Economic Advisor, Ministry of Finance, to recommend possible tax rates (Revenue Neutral Rate) that would be consistent with the present level of revenue collection of the centre and states. It will also conduct sector-wise and state-wise studies for the impact of GST on the economy, and is expected to submit its report in two months.
These recent developments strongly indicate the government’s willingness to implement GST in India from 1 April 2016. With the introduction of GST only a few months away, it would be prudent for businesses to be adequately prepared for the changes in order to benefit from potential business opportunities.