With senior policymakers sounding increasingly confident about the passage of the GST Constitutional Amendment Bill to GST this year, here is a ready reckoner on the issues surrounding the proposed tax reform and it will mean for the Indian economy.
Q. What is GST?
A. The Goods and Service Tax (GST) will be a comprehensive nationwide indirect tax on manufacture, sale and consumption of goods and services throughout India.
GST will subsume excise, service tax, state VAT, entry tax, octroi and other state levies.
GST will be levied and collected at each stage of sale or purchase of goods or services based on the input tax credit method and would make not just manufacturing but also the inter-state transportation of goods more efficient.
Q. What is to be done to implement GST?
A. As things stand, the Constitution Amendment Bill to GST has been long-pending in the Rajya Sabha with the Congress refusing to come on-board,. Finance Minister Arun Jaitley has expressed confidence that the bill will finally be passed in the Monsoon Session. Once that is done, here is what is still left: At least 50% of the States’ legislatures have to ratify the Constitutional amendments, Lok Sabha and Rajya Sabha have to pass the GST Bill (which is not the same as Constitution Amendment Bill) and the states have to pass their own GST bills.
Q. Is it possible for the BJP to push the bill through the Rajya Sabha?
The three parties in the Rajya Sabha that are opposed to GST passage: the Congress with 60 members and the Tamil Nadu parties, All India Anna Dravida Munnetra Kazhagam (AIADMK) and Dravida Munnetra Kazhagam. Tamil Nadu sends 18 members to the Rajya Sabha and 16 oppose GST.
Government sources say a tacit agreement has been reached for AIADMK’s 12 members to either abstain or walk out during voting.
The Bill is to be passed by a two-thirds majority of members ‘present and voting’. If those opposed to the Bill are not present and voting, the overall numbers will come down and the government will need to work less hard to reach the two-thirds number.
Q. What are the Congress party’s key objections to the Constitutional Amendment bill?
The Congress wants the GST rate to be capped at 18%, and creation of an independent mechanism to resolve disputes on revenue sharing between states. The NDA government’s stance is that capping it at that rate would make it difficult to tax so-called ‘sin’ goods, such as tobacco and alcohol.
Q. What rates is the government pushing for GST?
A panel led by Chief Economic Adviser Arvind Subramanian has recommended a standard rate of 16-9%-18.9% that will be applicable to most goods and services. The standard rate excludes real estate, electricity, alcohol and petroleum products.
It has also recommended 12% as the lower rate and 40% as the highest rate, to be imposed on demerit goods such as alcohol.
It has suggested a rate of 15-15.5% as the revenue-neutral rate. This is the rate at which the states and the Centre will not lose or gain revenue after the GST is applied.
Q. By when will it be implemented?
A. Assuming the Constitution Amendment Bill does pass in the Monsoon Session, GST will still not be in force before April 1, 2017. And that is putting it optimistically. Apart from the legislative process mentioned above, the states, India Inc, and industries and service providers big and small, will also have to prepare themselves for a completely new nationwide tax regime.
Q. How will GST be beneficial?
a. The introduction of GST would be a significant step in the reform of indirect taxation in India. Amalgamating several central and state taxes into a single tax will mitigate cascading or double taxation, facilitating a common national market. This would be hugely beneficial for consumers as the tax burden on inter-state logistics will be cheaper.
Currently, many goods are sold mostly within the state in order to avoid paying the CST which is not credited at the stage of manufacture or in course of trading. Good quality products being manufactured in one part of the country will find more market in the farthest part of the country because there will be no CST and no entry tax
The simplicity of the tax should lead to easier administration and enforcement. From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods.