By Poonam Bera, Army Institute of Law, Mohali.
After a prolonged delay, Goods and Service Tax (122nd Constitutional Amendment) Bill, 2014 has introduced in lower house of parliament on 19th December, 2014. It is regarded as one of the biggest tax reforms since 1947 and is targeted to be implemented by April 2016[i]. GST regime is expected to replace a number of indirect taxes levied by the Central and State Governments. It will create a single unified market for goods and services across the country.
Steps toward the GST System:
In 2005, value added tax was introduced. It was considered as major improvement over the pre existing central excise duty at national and state level tax system. Existing VAT regime has given rise to complex tax system that has resulted in economic distortions from inter-state differences and higher administrative cost. So, need to introduce a harmonized tax system in place of all indirect taxes guided toward the GST reforms. It was observed that introduction of GST will change these mechanisms and may lead to simplified and efficient administrative reforms reducing cascading of taxes prior to the introduction of VAT[ii]. Vajpayye government has first started discussion on GST to design a GST model. Later in 2007-2008 budget session announcement made by former finance minister Chidambaram regarding introduction of GST from 2010 but the bill lapsed.
Purpose of Introduction of GST Bill:
As provided in the statement of objects and reasons, to introduced the goods and service tax for conferring concurrent powers on union as well as states including the union territories to make laws for levying goods and service tax on every transaction of supply of goods and service.[iii]
Salient Feature of GST (Amendment Bill) 2014:
- GST Amendment Bill, 2014 provides centre as well as state to impose GST on supply of goods and service within a state, concurrently. Every supply of goods and service would be subject to central GST and state GST.
- Introduction of clause (1) in article 269, which provides
“goods and service tax on supplies in the course of inter-state trade or commerce shall be levied and collected by the government of India and such tax shall be apportions between the union and the states in the manner as may be provided by parliament by law on the recommendation of GST council”.
- Inter-state transaction of goods and service subject to control of centre and centre is entitled to levy tax called integrated goods and service tax.
- Imported goods will be subject to the inter-state GST as it intended to par with inter-state transaction but modus of imposing export duties on certain items is unclear.
- Bill has given wide definition to goods and service tax as new clause added in 366 clause (12 A). it provides
“Goods and service tax mean any tax on supply of goods and service or both except taxes on supply of the alcoholic liquor for the human consumption”.
- Petroleum and petroleum products shall be subject to the GST on notification by the GST council but with the provision of adding them at zero rates. [iv]
- Alcohol for human consumption will be out of GST, States to continue to levy taxes on alcohol. Items of tobacco product will be subject to separate excise duty by the centre.
- Goods excluded from the preview of the GST: petroleum crude, high speed diesel, petrol, natural gas, alcohol for human consumption, aviation turbine fuel. Only state have the power to levy taxes on these items except in case of inter-state trade and import.
- Provision for removing imposition of entry tax across India.
- Entertainment tax, imposed by states on varieties of activities like movie, theater will be subject to GST. This is a positive development for the entire entertainment sector but taxes on entertainment at panchayat, municipality or district level to be continue.
- GST will be levied on the sale of newspapers and advertisements and this would give the government’s access to substantial incremental revenues.
- Stamp duties, typically imposed on legal agreements by the state, will continue to be levied by the states.
- Administration of GST will be the responsibility of the GST council, which will become the apex indirect tax policy making body of the country. Formation of GST council to be made by the central and state level ministers in charge of the finance portfolio. In GST council states will be provided with the two-third vote in the council[v]
- New clauses added in article 279, providing the constitution of GST council by the president within 60 days from the date of the commencement of the act and also adding of some other clauses provides for the appointment of members of the GST council and its composition and powers to make recommendation.
- Bill also proposed for setting up a dispute settlement authority to look into disputes between centre and state on subject matters of GST.
- Introduction of new article 246A to confer simultaneous power to union and state to make legislatures on GST. Bill also provided the amendment in the respective article: Article 248, 249, 250, 268, 268A, 269 and 270, 271 and 286.
- Central taxes like, central excise duty, additional excise duty, service tax, additional custom duty and special additional duty and at state level taxes like, VAT or sales tax, central sales tax, entertainment tax, entry tax, purchase tax, luxury tax and octroi tax will subsumes in GST.
- Amendment to sixth and seventh schedule of Indian constitution.[vi]
Effect of GST Amendment Bill on States:
The trust deficit between centre and state was one of the reasons of non implementation of GST because of nonpayment of Central Service Tax. CST compensation is one sticky issue that has been holding on introduction of goods and service tax regime. To solve this clog finance minister has announced RS 11, 000 corers as compensation to the states for the initial year’s loss of revenue.
“The government will make sure that no state will lose money and it will be a win – win tax for both the centre and the state government” as stated by finance minister Arun Jaitely.[vii]
GST Bill, 2014 as a Positive Step for Economic Development:
GST Bill, 2014 has prescribed certain provision according to which both central and states taxes will be collected at point of sale. It will improve tax collection which will directly help in boosting Indian economic. Both central and state GST will be charged on manufacturing cost so; this will lower the price of goods and services so, expected as advantageous reform for both consumers and companies.
Introduction of GST will make our products competitive in the domestic and international markets. This will instantly spur economic growth. GST will include all multiple taxes at centre and state level so; there will be three kinds of taxes first, at central level, central GST consisting of central excise duty, additional excise duty, service tax, additional custom duty, and special additional duty of custom and central surcharge. Second, state GST, this will subsume state value added tax, entertainment tax, luxury tax, taxes on lottery, batting and gambling, tax on advertisements. Third one, will be integrated GST on inter-state transactions of goods and services[viii].
Implementation of GST alone will add 1.5 to 2 % point to the India’s GDP growth. It can help in solving several issues like inflation and fiscal deficit and Tax evasion.[ix] The biggest advantage will be in term of reduction of overall burden on goods which is 12.35%. Lower tax burden will translate into lower prices of goods beneficial for consumers.
Corporate Sector on GST Bill:
- This change in tax reform will impact almost all business division of economic sector. Since, it is essentially a consumption tax so; it will have its impact on manufacture sector. It will lead to reduction in expenditure and growth in supply chain of goods.
- According to Page industry: GST will increase the tax burden, which the company says pass on to the consumers.
- Implementation of GST will lower entertainment taxes so it is regarded as best reform for entertainment industry.
- Benefit to the transport sector. Service providers have to experience a tax regime with high rate and compliance level.
- Auto sector will benefit from the reduction in duties on large cars and other transport vehicles.
- GST will lead to unified market leading seamless movement of goods across states. This is expected to reduce the transaction cost of business. .[x]
- GST will also bring reforms in real estate sector. It will help in reducing black money generation in the sector.
The GST bill, a landmark step in the field of indirect tax reform in India, has the potential to bring certain reforms in tax regime which can further led to economic development. GST will remove multiple taxes suffering from infirmities, mainly exemptions and multiple rates. So, It is expected as a device to build a transparent and corruption free tax administration.