Finance minister Arun Jaitley on Monday introduced in Lok Sabha four crucial bills required to implement the Goods and Services Tax (GST).
The legislation capped the maximum GST levy at 40%, tweaked the compensation formula while mandating an anti-profiteering authority and jail term for tax evaders.
The four bills moved in the lower house of Parliament are the Central Goods and Services Tax (CGST) Bill, Integrated Goods and Services Tax (IGST) Bill, the Goods and Services Tax (Compensation to States) Bill and the Union Territory Goods and Services Tax (UT-GST) Bill.
The CGST, IGST and SGST provide for a maximum tax of 20% each. Taken any of the two taxes together, the bills provide that the maximum tax burden in the GST regime at 40% as an enabling provision for financial emergencies.
The actual rates in the four-slab structure will be 5%, 12%, 18% and 28%, as approved by the GST Council.
“This is a concrete step towards GST implementation from 1st July 2017. Hope the other key pending aspects as classification of goods and services, various rules and grandfathering of tax exemption schemes are also finalised soon so that industry gets enough time to implement GST readiness from IT and business perspective,” says Santosh Dalvi , a partner looking into indirect taxes at KPMG India.
“The official announcement towards July 1 would certainly help industry big way as it would provide the clarity on implementation date.”
The GST (Compensation to States) Bill provides for mechanism for making good any loss of revenue of states from introduction of GST in first five years of rollout.
The CGST Bill also provides for e-commerce companies to collect tax at source at a rate not exceeding 1% of net value of taxable supplies.
Businesses in the Northeastern and hill states with annual turnover below Rs.10 lakh would be out of the GST net, while the threshold for the exemption in the rest of India would be an annual turnover of Rs.20 lakh.
The GST will merge all the indirect central government levies like sales tax, service tax, excise duty, additional customs duty (Countervailing Duty), special additional duty of customs, surcharges and cesses.
The GST will reduce the cascading impact of taxes, help shore up revenues, moderate inflation and spur economic growth by 1-2 percentage points.
The Compensation Law provides for levy of cess on top of the peak rate of approved tax on paan masala, tobacco, aerated waters, luxury cars and coal to create a fund for compensating states.
Such cess has been capped at 135% in case of paan masala, Rs 4,170 per thousand cigarettes sticks or 290% on value (ad valorem), Rs 400 per tonne on coal and 15% on aerated water and luxury cars.
The compensation to states will be paid bi-monthly and the amount due would be calculated after considering a 14% growth rate in taxes over the base year of 2015-16.
On March 21, the Cabinet approved four draft laws on Goods and Services Tax (GST) needed to implement the country’s biggest reform from July 2017.
The GST Council has already cleared drafts of all legislations required to be passed by the Parliament and state assemblies for implementing the new indirect tax.
The GST legislations will be taken up as money bills in Parliament this budget session, which restarted on March 9 after a month-long recess. The Rajya Sabha can’t reject money bills as it only has powers to make recommendations on such legislation, which the Lok Sabha can choose to accept or reject.
The Narendra Modi government is racing against time to roll out GST from July, after successive governments have missed deadlines.
With the introduction of the bills in Parliament, the government is in the last lap of the tax reform that will integrate India as one market with one rate of tax replacing multiple state and central levies.
To protect small businesses, the CGST provides for a tax of no more than 1% of turnover for manufacturers with annual turnover of up to Rs 50 lakh and 2.5% for suppliers.
To ensure that benefit of lower taxes is passed on to consumers, an anti-profiteering measure has been incorporated in the law.
It provides for constituting an Authority to examine whether input tax credits availed by any registered taxable person, or the reduction in the price on account of any reduction in the tax rate, have actually resulted in a commensurate reduction in the price of the said goods and/or services supplied by him.
The law provides for arrest, ordered by no less than a Tax Commissioner, in case of suppression of any transaction or evading taxes. A person convicted is punishable by up to 5 years of imprisonment along with financial penalties.
The GST Compensation Bill has been tweaked to ensure Centre gets a higher share of the residual amount in the compensation fund at the end of the 5-year period.
According to the Goods and Services Tax (Compensation to States) Bill, as introduced in the Lok Sabha today, they will receive provisional compensation bi-monthly from the Centre for loss of revenue from implementation of GST. The draft law had provided for payment of compensation every quarter.
Tweaking the provision of the draft, which was made public in November 2016, the GST Compensation Bill said that “any residual amount left in the Compensation Fund after five year compensation period shall be shared equally between the centre and the states”.
The bill also provides for audit of accounts relating to Compensation Fund by the Comptroller and Auditor General. Also the final adjustment of compensation to be paid to the states would be done after audit of accounts for the year by the CAG.
The Bill also stipulates that the base year for calculating the revenue of a state would be 2015-16 and a growth rate of 14% would be used for calculating the revenue of each state in the first five years of implementation of GST.
The loss of revenue to a state will be the difference between the actual realisation to a state under GST regime and the tax revenue it would have got under the old indirect tax regime after considering a 14% increase over the base year of 2015-16.
The revenues of states that were not credited to the Consolidated Fund of the states but were directly devolved to “mandi” or “municipalities” would also be included in the definition of ‘revenue subsumed’, the bill said.