Goods and Services Tax Bill – Review

Introduction

This is the most talked about topic in the society. Politicians talk about the benefits it incurs to the customers in the long run. The small-time shop owners raise their concerns, the multinational companies are for it and the end customers get confused because of all these developments. Basically, the bill proposes to bring a national value-added tax in the country, uniting all the existing state and national level laws under one platform for direct tax administration. The central government proposes to bring this GST Bill by April 1, 2017. However, both the houses of Parliament have to ratify this bill by 2/3^rd majority. Apart from this, about 50% of states in the Indian Union need to give their consent to make it a law. The central government is working hard to bring the GST Bill on the said date. Being a federal country, state and central governments have to bring in GST concurrently. However, both will have independent functions.

What is GST?

Goods and Services Tax is going to become a comprehensive indirect tax framework. This is going to cover manufacture, and sale and consumption of goods and services across India. When working, it will replace taxes levied by both state and central governments. The bill proposes to collect the value-added tax at each stage of sale or buying of goods and services. The government is going to collect the taxes on the input tax credit method. This novel method allows the GST-registered commercial establishments to claim tax credit to the value of GST they had paid on buying of goods and services.   Another positive point is that the bill does not distinguish between taxable goods and services. Hence, there will be at a single rate in a supply chain from the buyers to the end users. As against the multiple authorities for levying tax in the current set up, the new bill envisages the tax administration to come under a single authority.

Constitutional Amendment

In order to bring the GST Bill, the lawmakers need to bring in certain amendments. The lawmakers will have to pass the bill as per the provisions of Article 368 of the constitution. The constitutional amendment should get approval from Lok Sabha, Rajya Sabha and the States. Both the houses of Parliament should pass this bill with 2/3^rd majority. Moreover, 50% of states also need to give their consent for this bill. Hence, it came as 122^nd amendment to the constitution in 2014. On December 19, 2014, Union Finance Minister Arun Jaitley introduced the bill envisaging changes in the constitution for approval in the lower house of Parliament. Lok Sabha passed the bill on May 6, 2015.  Subsequently, it was sent to the Rajya Sabha for its consent. In the upper house, there was some opposition to the bill. Hence, the ruling dispensation agreed to send the draft of the bill to a Select Committee of lawmakers from both the houses of Parliament. The committee suggested certain changes to the bill draft. The upper house of the Parliament approved the new draft that incorporated the suggested changes on April 3, 2016. Since it was an amended draft, it was re-introduced in lower house of Parliament for its approval. Finally, Lok Sabha also passed the bill on August 8, 2016. Now, the draft is in the court of the States. At least, 50% of the States have to pass the bill to make it an act. The north-eastern state of Assam became the first state to give its consent for the bill on August 12, 2016.

Benefits of GST

Many hail GST as the major reform since the opening of trades and services to the private sector in 90s.  This would be a major step in the reform of indirect taxation in India. As said before, this bill amalgamates several state and central government taxes into a single tax structure for the easy administration. This would bring down the cascading or double taxation and help a common national market. Under the new tax regime, the exports will become zero-rated. Apart from this, tax rate on the imported goods will be same as that levied on domestic goods and services. The bill proposes to simplify the indirect tax administration by bring under a single and competent authority. Under the present set up, the state and central authorities figure out and administer taxes. Hence, the present framework has many lacunae for tax evasion. Though taxes remain nominal or zero rated initially, they may go high once the government decides to levy GST on petroleum and petroleum products. Hence, the GST bill proposes to insulate the revenues of the state governments from its impact. In order to keep the prices and inflation under control, the States have asked for suitable compensation for any revenue losses from the central government. The Centre has in principle has agreed to give suitable compensation for 5 years since the date of implementation of GST.

Benefits for Customers

The end users don’t have to pay tax at multiple levels while purchasing goods and services. There is no distinction between taxable goods and services down the supply chain in the GST framework. Hence, the customers don’t have to pay hefty taxes at the time of buying. Moreover, the tax burden on the consumers would come down drastically due to these legislations. At present, the customers are paying close to 30% taxes at multiple levels. The middle men carrying the goods and services to different states don’t have to cough up hefty amounts in the form of taxes and favours at the border checkpoints. Ultimately, this would pass down to the customers in the form of lower prices. This would also bring down the paperwork that goes into the documentation in the states for each good entering under their jurisdiction. 

Salient Features of GST Bill

1.         GST has two components. One comes from the Centre and the other from the States. The authorities are going to prescribe rates for centre- and state-administered GST, according to the revenue consideration and acceptability of the stakeholders.


2. Basic features of GST will be uniform across the statutes – one Central GST (CGST) and the other for State GST (SGST) for every State. The features covered include chargeability, basis for classification, definitions of taxable event and taxable person, measure of levy including valuation provisions, etc.
   
   


3. The Centre and States will levy GST on all transactions involving goods and services. However, the tax consideration will exempt certain goods and services as defined by the competent authority and those goods that are outside the purview of GST. There is a threshold over which these goods and services attract the GST.


4. The separate accounts of the Centre and States will get the revenue returns.  These accounts would also hold the information about the account-heads for all the services and goods. That is the account-heads will tell whether the revenue is for the Centre or States.


5. The tax paid to the Central GST will go as the Input Tax Credit (ITC). As per the provisions, this amount can only be used against the CGST payment as well. So, under no condition the cross usage of ITC is possible. However inter-state supply of goods and services will get waiver under the IGST model.


6. The Centre and States have to avoid the credit accumulation on account of GST refund.  However, the authorities can waive this condition when they deal with exports, input taxes at higher rate than output tax, buying of capital goods, etc.      


7. The Centre and States need to follow the uniform procedure for collecting GST to the extent possible as per the legislations for Central and State GST.


8. The Centre and the States would have concurrent jurisdiction for the entire value chain and all tax payers. However, this will be on the basis of threshold for goods and services as prescribed for the States and the Centre.


9. As per the suggestions given by the honourable members of the Parliament, there is an upper ceiling on gross annual turnover and floor tax rate on it. It is now set at 18%.


10. The taxpayer need to send periodical forms in the prescribed format to both the


11. Central and State GST authorities. This will be verified by the said authorities periodically to ascertain the current status of the taxpayer.


12.   On submission of the forms, each taxpayer will get a PAN-linked taxpayer identification number. The number will have either 13 or 15 digits.  This will align the GST-PAN linked system with the PAN-based system for income tax.


13.   In order to help the taxpayers, the competent authorities will execute the functions such as enforcement, assessment, audit and scrutiny in transparent way. Hence, this will do away the hassles of waiting for the results.