The Centre and states agreed on Saturday on two bills crucial to triggering a Goods and Services Tax, virtually clearing the path for a July 1 rollout of the country’s biggest tax reforms since independence.
After the 11th GST Council meeting, finance minister Arun Jaitley said the GST council has approved the two legislation -- the Central GST and Integrated GST bills –- to replace excise duty and service tax with the GST. The council now has to approve the State GST Bill. The CGST and IGST Bills will have to be approved by the Parliament now and ratified by states.
Here are the 10 things that you need to know about the GST regime:
1) Constitution amended for GST
The government amended the Constitution, which requires approval from two-third of members in both the Lok Sabha and Rajya Sabha, to switch over to GST from the present tax regime at the Centre and states.
The Lok Sabha passed the Constitution (One Hundred Twenty Second Amendment) Bill on May 6, 2015.
The Bharatiya Janata Party-led National Democratic Alliance government took months to bring all opposition parties on board so and move the Bill in Rajya Sabha where the ruling party does not enjoy a majority.
On August 3, 2016, the Rajya Sabha approved the Bill after a marathon debate and with some changes. On August 8, the Lok Sabha approved the amended bill.
2) India as a common market with one tax
The GST will unify India into a common market with one tax across all states, which will eliminate the present cascading impact of a plethora of central taxes.
Central taxes such as Central Excise Duty, Additional Excise Duty, Additional Customs Duty and Service Tax will all be merged into one CGST.
State levies such as VAT, sales tax, entertainment tax, purchase tax, mandi tax, luxury tax, octroi and entry tax, will be subsumed into SGST.
The Centre will levy the Central GST and Integrated GST, while states will impose the SGST.
3) Four-slab GST structure
The new regime will have a four-slab structure of 5%, 12%, 18% and 28%.
There will be no tax on several items including rice, wheat and other essential items, which constitutes 50% of CPI inflation basket.
The lowest tax rate of 5% is proposed for items of mass consumption used by common people such as spices, tea and mustard oil.
There will be two “standard” rates of 12% and 18% covering most manufactured items and services.
The highest tax rate of 28% will be imposed on items like luxury cars, pan masala, tobacco and aerated drinks. These items are currently attracting a tax of 27-31%.
4) States to get compensation if there is revenue loss
The Compensation Bill will ensure states will get fully compensated for the first five years if there is a revenue loss after GST is rolled out.
There could an enabling provision in the GST Bills that highest slab could be raised up to 40% to make up for the loss in revenues coming from other items.
5) Dual control on assessing taxpayers
The Centre and states will both assess taxpayers having a turnover of over Rs 1.5 crore in turnover annually.
States will the power to assess taxpayers below Rs 1.5 crore in turnover.
At present, 90% of taxpayers have turnover below Rs 1.5 crore annually and they will be assessed by states.
6) How GST will lower tax burden
GST will be a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition.
The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
7) How will consumers benefit
Consumers now pay higher taxes as multiple levies are imposed --- one over the other --- at various stages starting from production to the retail sales.
GST will be a single and transparent tax proportionate to the value of goods and services.
GST will eliminate the cascading impact of multiple indirect taxes being levied by the Centre and states, with incomplete or no input tax credits available at progressive stages of value addition. Under GST, there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer.
8) Will industry benefit from GST
For India Inc, GST will ensure easier compliance through the GST Network (GSTN) platform. A seamless tax-credit system throughout the value chain and across states will ensure that there is minimal cascading of taxes. This would reduce hidden costs of doing business.
All services such as registrations, returns and payments will be available to the taxpayers online, which would make compliance easy and transparent.
GST will help India improve its ranking in the ease of doing business.
9) GST impact on inflation
Initially, GST may lead to a higher inflation as many services and manufactured products get costlier and as compliance improves.
However, GST will help moderate inflation in the medium to long term as the cascading impact of taxes goes.
10) Will GST help the economy
The GST is widely perceived to help in accelerating economic growth by 1-2 percentage points as it shores up revenues of Centre and states, which can be invested in infrastructure and social schemes.
Industry will be able to invest more money in ramping up capacity as the tax burden is reduced, which will propel growth and employment.