As all of you know that yesterday night, the Rajya Sabha passed a bill to amend the Constitution to facilitate the rollout of the historic GST amid government’s assurance that the tax rates would be kept “as low as possible”. The Constitution (122nd Amendment) Bill, 2014 was approved by the Upper House with 203 votes in favour and none against, after a seven-hour debate during which a rare bonhomie was witnessed among the ruling and the opposition parties. Six official amendments, including the scrapping of one percent additional tax, moved by the government were approved with cent percent votes.
So here is a ready reckoner on the issues surrounding the proposed tax reform and it will mean for the Indian economy. But first, let’s know more –
As the name suggests, it is a tax levied when a consumer buys a good or service. It is meant to be a single, comprehensive tax that will subsume all the other smaller indirect taxes on consumption like service tax, excise duty etc. This is how it is done in most developed countries. It will be a comprehensive nationwide indirect tax on the manufacture, sale, and consumption of goods and services. The aim is to have one indirect tax for the whole nation, which will make India a unified common market. 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 interstate transportation of goods more efficient.
At the central level, the following taxes will be subsumed: Central Excise Duty, Additional Excise Duty, Service Tax, Countervailing Duty (Additional Customs Duty), and Special Additional Duty of Customs.
At the State level, the following taxes will be subsumed: State Value Added Tax/Sales Tax, Entertainment Tax, Central Sales Tax, Octroi and Entry tax, Purchase Tax, Luxury tax, and Taxes on the lottery betting and gambling.
The benefits of GST can be summarized as under:
1. Easy compliance
2. Uniformity of tax rates and structures
3. Removal of cascading
4. Improved competitiveness
5. Gain to manufacturers and exporters
• For Central and State Governments
1. Simple and easy to administer
2. Better controls on leakage
3. Higher revenue efficiency
• For the consumer
1. Single and transparent tax proportionate to the value of goods and services
2. Relief in overall tax burden
- The opposition party ‘Congress’ wants a provision capping the GST rate at 18 percent to be added to the Bill itself. It also wants to scrap the proposed 1 per cent additional levy (over and above the GST) for manufacturing states. This levy was demanded by manufacturing states who argued that they needed to be compensated for the investment they had made in improving their manufacturing capabilities. The Centre had agreed to this demand to encourage the states to support the GST Bill.
- The next demand by the Congress was to change the composition of the GST council—the body that decides the various nitty-grittys like rates of tax, period of levy of an additional tax, principles of supply, special provisions to certain states, etc. The proposed composition is for the Council to be two-thirds comprised from states and one-third from the Centre.
- The Congress also wants the Centre’s share to be reduced to one-fourth. This demand, however, was rejected by even the Rajya Sabha Standing Committee.