The hoopla around Goods and Services Tax (GST) Bill must have made you wonder as to how it matters to you. The corporate world and stock market investors have been yearning for it for years now. Some criticise it while other strongly recommend it.
GST Bill, if implemented, can surely be called as one of the most critical and crucial tax reforms in India.
Former deputy chairman of the Planning Commission,Montek Singh Ahluwalia , recently said that a sound GST will help boost revenues by countering leakages and also increase efficiency and therefore raise growth of the country.
But the problem arises between political differences over passing the GST bill. Why?
Currently the state government has a separate tax structure which is higher than the central government’s tax rates. If the GST bill were to be introduced, state government would lose out on key revenue.
The state governments have been at war with the centre regarding the losses. Finally, the centre has accepted to compensate the state for all the losses for the first three years and 70 per cent and 50 per cent for the fourth and fifth year respectively.
The GST rate is to be set anywhere between 20-24 per cent but the opposition party argues to bring the rate down within 18 per cent. The congress wants a cap on the GST bill, eradicate the extra 1 per cent tax which has been kept to compensate manufacturing states and to create an independent mechanism to address disputes on revenue sharing from the GST.
The state of Tamil Nadu has expressed its reservations towards the passing of the bill
Ongoing negotiations have postponed the passing of the bill. It needs two thirds of majority from the Rajya Sabha and 50 percent of the state assemblies.
A silver bullet of sorts
Investors have branded the GST as a ‘silver bullet ‘for Asia’s third largest economy that could possibly inflate costs for businesses.
On the other hand, FM Jaitley calls it the biggest reform since 1947 that would create a market for one sixth of the world’s population and could boost the rate of growth by 2 percentage points.
Benefits of the GST
The implementation of the GST will enable companies to reduce the cost of their logistics, simplify the tax structure and make the supply chain of business so convenient and smooth.
Finally, the organised sector will be in a better position to compete with the unorganised sector in terms of prices and demand.