The 122nd Constitutional Amendment Bill enables the government to introduce the goods and services tax (GST) and make laws for levying the GST on every transaction of supplying goods or services, or both. It will subsume a number of indirect taxes and will create a common national market.
The GST Council will be the nodal authority for determining and regulating this one-tax system. The decision of the Council shall be taken by a majority of not less than three-fourths of the weighted votes of the members present. The central government will have a weight of one-third and the state governments of two-thirds. There is the flexibility that the Centre and the states will raise additional resources for natural calamities and disasters. Currently the Centre is not empowered to levy any tax beyond manufacture and states do not have the powers to levy tax on services. States will look into the issue of cross-verification within states and the Centre should deal with tax cases having inter-state movements. The rolling out of the GST is likely to enhance GDP by about 2% and improve the fiscal deficit as tax compliance will be better. The apprehension of states of losing revenue has been taken care of by compensating them for five years. Any loss to states will be compensated by the Centre at 100% for the first three years, 75% in the fourth and 50% in the fifth. The GST is proposed to be rolled out from April 1, 2016.
Manufacturers and traders will have advantages like one tax, a common market, no difference between goods and services, simple billing, and common exemption between the Centre and the states. The GST is a destination-based tax, and the place of supply will be the taxing point. Currently, 144 countries have the GST. As far as the rate is concerned, it will be decided by the GST Council. The finance minister has said that it is a wrong message that the rate of the GST will be around 27% and in the case of India if it is kept between 18 and 20%, that would be good enough; The Centre and the states will share half the revenue each.
The Bill was passed smoothly but the objections are painful as opposition for the sake of opposition is not a healthy sign. The proposal for the GST was first mentioned in the 2006-07 budget and afterwards the dialogue with states began and an Empowered Committee of State Finance Ministers was constituted in 2008. The UPA government introduced the GST Bill in 2011, and thereafter it was referred to the Standing Committee. In August 2013, the recommendations of the Standing Committee were incorporated in the Bill and the revised Bill was sent to the Empowered Committee in September 2013. In March 2014, incorporating the recommendations of the Empowered Committee, the revised version was sent for examination. The Bill was introduced in December 2014, and passed on May 6, 2015, in the Lok Sabha. So far, states did not share service tax. Therefore, their revenue collection will be higher than what it is today. Consumers will benefit in a big way, and so will manufacturers and traders. Manufacturers are expecting a 3-4% reduction in overall taxes. Also there is loss of 3-4% taxes in the whole chain from raw material to finished goods. So, overall, this much saving on taxation will happen.
Udit Raj is a Lok Sabha MP
The views expressed are personal