Sunday, November 29, 2015

What is the GST Bill: All you ever wanted to know explained in 10 points

1. The GST Bill is a destination-based, indirect tax that will be levied on manufacture, sale and consumption of goods and services across India.

2. The GST Bill will subsume all central and state indirect taxes and levies, including excise duty, additional excise duties, service tax, additional customs duty (countervailing duty, special additional duty of customs), surcharges and cesses, value added tax, sales tax, entertainment tax (other than the tax levied by local bodies), central sales tax (levied by the centre and collected by states), octroi, entry tax, purchase tax, luxury tax, and taxes on lottery, betting and gambling.
3. GST Bill passage will bring uniformity, reduce the cascading effect of these taxes by giving input tax credit. Currently, tax rates differ from state to state. GST Bill will ensure a comprehensive tax base with minimum exemptions - will help industry, which will be able to reap benefits of common procedures and claim credit for taxes paid.
4. GST Bill passage is expected to reduce the cost for consumers with Finance Minister Arun Jaitley estimating GST will help increase India’s GDP by around 2 per cent.
5. As far as the the constitutional status of GST is concerned, then currently, states don’t have the power to levy service tax, while the Centre does not have the power to levy tax beyond the factory gate, i.e. VAT, sales tax, etc. To facilitate this, a constitutional amendment is required.
6. The UPA government brought the GST Bill in Lok Sabha in 2011, but failed to get it passed. The NDA government introduced a “slightly modified” version of the GST Bill in Lok Sabha last December. It was cleared on May 6, but for GST to become a reality, the Bill must be cleared by two-thirds majority by both Houses, and ratified by 50% of states. It is now pending in Rajya Sabha and that is where the meeting between PM Narendra Modi, former prime minister Manmohan Singh and Congress President Sonia Gandhi assumes significance. 
7. Exactly why the GST Bill is stuck is because the government does not have a majority in Rajya Sabha. Also, many states do not want to give up their fiscal autonomy. In Budget 2007-08, then finance minister P Chidambaram announced GST’s implementation from April 1, 2010. The empowered committee of state finance ministers led the discussions. Punjab and Haryana were reluctant to give up purchase tax, Maharashtra was unwilling to give up octroi, and all states wanted to keep petroleum and alcohol out of the ambit of GST. BJP-ruled states like Madhya Pradesh and Gujarat took hard positions too.
8. The GST Bill has been passed in the Lok Sabha, but despite that most of the original concerns of states remain. Gujarat and Maharashtra want the additional one per cent levy extended beyond the proposed two years, and raised to two per cent. Punjab wants purchase tax outside GST.
9. If and when the GST Bill is passed then the Centre and states have to frame and pass GST laws - Central GST and State GST - which will provide the framework for the new tax. The IT infrastructure has to be ready before April 1, 2016, the scheduled date for implementation of the new tax.
10. A GST Council will be formed, which will decide on issues including tax rates, exemption list and threshold limit.

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