Lok Sabha passes key GST bills: Understanding the tax reform and what it means
The Lok Sabha on Wednesday passed key legislations, putting India – Asia’s third-largest economy – on course to launch a nationwide goods and services tax (GST) from July.
India on Wednesday created history when the Lok Sabha cleared all the four bills for the launch of the much-awaited Goods and Services Tax (GST), the country’s biggest tax reform since Independence.
The GST will unify India into a common market, eliminating a string of central and state levies.
Central taxes such as the 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. Several countries have implemented GST or another form of a value-added tax, but Canada is the closest to India with a dual structure.
The new indirect tax is expected to shore up government revenue and spur economic growth by 1-2 percentage points.
Four-slab GST structure
– The new regime will have four slabs of 5%, 12%, 18% and 28%.
– There will be no tax on essential items such as rice and wheat.
– The lowest tax rate of 5% is proposed for items of mass consumption such as spices, tea and edible oil.
– There will be two “standard” rates of 12% and 18% covering most manufactured items and services.
– The highest tax, of 28%, will be imposed on items such as luxury cars, pan masala, tobacco and aerated drinks.
Compensation to states
– The compensation bill that was passed on Wednesday will ensure states get compensated for the first five years for the revenue loss after the GST rollout.
– The money will come from a fund created from the cess the Centre will charge on certain goods, above the GST rate.
Dual control on taxpayers
– The Centre and states will both assess taxpayers with an annual turnover of above Rs 1.5 crore.
– States will also have the power to assess taxpayers with a turnover below Rs 1.5 crore.
Exemption from GST
– In Northeastern states, businesses with an annual turnover of Rs 10 lakh or below will be exempt from GST. For the rest of India, the limit is Rs 20 lakh.