What is GST?
GST will be an unified tax levied by the government that will subsume a large number of central and state taxes on the supply of goods and services. GST is a value-added tax and will be destination based (the tax will be levied on the basis of the place of consumption not production).
Why is GST beneficial?
According to the Constitution, both the Centre and states are authorised to collect taxes and frame rules. Therefore, businesses that produce their products in one state and sell in another end up paying a number of taxes, which in turn increase the cost of the final product for the consumer. GST will eliminate this and reduce the end cost of a product. Also, according to estimates by the National Council of Applied Economic Research, the implementation of GST can enhance India’s GDP by 0.9-1.7% as the current system of multiple taxes was leading to distortion in allocation of resources as well as production inefficiencies.
What is the procedure to implement GST?
The Constitution defines the goods that can be taxed by states and the Centre in the Seventh Schedule. Also, it does not allow states to tax supply of services and the Centre to tax sale of goods. Since the GST regime seeks to change these provisions, an amendment in the Constitution is required. The GST Bill seeks to carry out these amendments (the official name of the bill is The Constitution (122nd Amendment) Bill).
What changes does the Bill propose?
The Bill allows both Parliament and state legislatures to frame laws with respect to GST. However, the Centre will have the exclusive power to levy GST on imports and inter-state trade. It also provides for setting up of a GST council consisting of the union and state finance ministers to make recommendations with respect to GST such as the rate of tax and the quantum of compensation for states. This council will also act as the dispute settlement authority for matters related to GST.
What all products will be taxable under GST?
As per the Constitution (122nd Amendment) Bill, 2014, GST will be levied on all goods and services apart from alcohol meant for human consumption.
How would GST work?
GST will have three components: Central GST; state GST and integrated GST. CGST and IGST will be levied by the Centre while SGST will be levied by states.
What is integrated GST?
IGST would be levied on inter-state supply of goods or services. This tax will be levied by the Centre and the requisite payments will bw made to the state in which the goods or services are consumed. Import of goods or services would be treated as inter-state supplies and would be subject to IGST.
If GST is similar to VAT then what is its need?
Although GST is value-added in nature (similar to central VAT and state VAT), it subsumes many other taxes. Also, GST will remove the cascading effect since currently, both state VAT and CENVAT are levied on goods at point of sale and production stages respectively.
What are the concerns of states?
States had expressed concerns over revenue sharing between them and the Centre, and have said that there would be significant loss in tax collection. Also, states had requested power to tax petroleum and liquor products.
How have these issues been addressed?
As far as revenue losses are concerned, the GST Bill provides for compensation to states for a period of up to five years. With respect to taxes on petroleum and liquor, the former will be zero-rated while the latter has been kept out of the purview of GST. There is also a provision for an additional levy of up to 1% on the inter-state trade, which will be levied by the Centre for two years and the resultant revenues will be assigned to states from where the supply originates.