GST- Way Forward

Dr. Sanjiv Agarwal

What is GST

Simply put, goods and services tax is a tax levied on goods and services imposed at each point of sale or rendering of service. Such GST could be on entire goods and services or there could be some exempted class of goods or services or a negative list of goods and services on which GST is not levied. GST is an indirect tax in lieu of tax on goods (excise) and tax on service (service tax). The GST is just like State level VAT which is levied as tax on sale of goods. GST will be a national level value added tax applicable on goods and services.

A major change in administering GST is that the tax incidence is at the point of sale as against the present system of point of origin. According to the Task Force under the 13^th Finance Commission, GST, as a well designed value added tax on all goods and services, is the most elegant method to eliminate distortions and to tax consumption.

Highlights of proposed GST

Following are the highlights of proposed GST to be levied in India:

Dual structure: India is implementing ‘dual GST’. Centre Government would be levying Central GST (CGST) and State Governments would be levying State GST (SGST). CGST and SGST would be applicable on all the transactions of goods and services made for a consideration except:

• Exempted goods and services which are outside the purview of GST; and
• Transactions which are below the prescribed threshold limits.

Task Force ( 13^th Finance Commission) suggests that –

(a)                Central Board of Excise & Customs (CBEC) shall be responsible for implementing the CGST and State Tax administration should be separately responsible for implementing the SGST.

(b)                Tax administrative functions such as assessment, enforcement, scrutiny and audit should be undertaken by the CBEC in respect of CGST and by the State tax administration in respect of SGST.

Statutes: This dual GST model would be implemented through multiple statutes (one for CGST and SGST statute for every State). However, an assurance is given in the paper that the basic features of law such as chargeability, definition of taxable event and taxable person, measure of levy including valuation provisions, basis of classification etc. would be uniform across these statutes as far as practicable.

Date of introduction of GST: No date for introduction of the GST is proposed in the Paper. The deadline for its implementation was  April 1, 2010 which is already  missed. It also suggests phased implementation for political or economic reasons, if any. It is now hoped that GST may get introduced from April 1, 2012.

Rate of GST: Rate for SGST and CGST is not specified in the paper but it is assured that the same would be known at appropriate time. The rates in GST regime would be:

• Necessities: Lower Rate
• Goods of basic importance: Standard rate
• Precious metal: Special rate
• Exempted items: Nill Rate
• Others.

GST : Way Forward

The Union Cabinet on 15^th March, 2011 approved the Constitutional Amendment Bill to place in Parliament to facilitate  the proposed GST. According to the proposed amended bill, it is proposed  that the GST  Council for taking decisions on all  important matters will be formed through a Presidential order. This will provide flexibility to the Government to make changes quickly instead of going through a lengthy Parliamentary process. However, the  constitution of the GST Dispute Resolution  Authority will be decided by the Parliament. The Constitution  (115^th Amendment) Bill 2011 proposes to give powers to both, the centre and the states to make  laws with respect to GST. The Bill is a necessity because, presently, the Union can not impose  excise duty beyond the manufacturing   stage and states cannot levy a tax on services.  GST council shall be headed by the Union Finance Minster and will have Finance Minister of each State as its members, It will decide on tax rates, exemptions and threshold limits. It will also make recommendations on taxes, cesses and surcharges  by the centre, states and local bodies, which may be subsumed in GST. The proceeds of the Central GST shall be shared  between the Union and the States on the basis of devolution formula recommended by the Finance Commission.

Presently, there is no declared time line set for introduction of GST as there is no finality as to consensus.  Once the Constitutional Amendment Bill is introduced in the Parliament, it will be referred to standing committee , passed by the Parliament and further ratified by atleast 50 percent  of state legislative assemblies before GST legislation is enacted. It may happen in 2012 or even later.

The Government on 22 March , 2011 introduced the Constitutions Amendment Bill, in the Parliament which will facilitate implementation of the Goods and Service Tax (GST). The Constitutional Bill provides for the following :

• Amendment in  the Constitution conferring simultaneous power on Parliament as well as the State Legislatures (including every Union territory) to make laws for levying GST on every transaction of supply of goods or services or both except those that are exempt or kept out of the purview of the goods and service  tax.

• States to levy tax on intra-State sale of goods kept outside the purview of the GST (namely, Petroleum crude, High Speed Diesel, Natural Gas, Motor\Spirit (Petrol), Aviation Turbine Fuel and Alcoholic Liquor for human consumption).

• Subsuming of various Central levies (like Excise Duty, AEDs, Excise Duty on Medicinal and Toilet Preparations, Service Tax, CVD, SAD, certain Surcharges and Cesses).

• Subsuming of various State levies (like VAT/Sales Tax, entertainment tax (unless levied by local bodies), Luxury Tax, Taxes on lottery/gambling, tax on advertisements, State Cesses! Surcharges
• Integrated GST (IGST) would be applicable on inter-State transactions of goods and Services.

• Creation of a Goods and Services Tax Council

• Enabling the setting up of a Goods and  services Tax Dispute Settlement Authority

• Enabling the levy of goods and services tax on sale or purchase of newspapers and advertisements published therein

• Permitting only Municipalities and Panchayats to levy and collect tax on entry of goods in a local area for consumption, use or sale therein

• Empowering District Councils and Regional Councils also to levy tax on entertainment and amusement;.

It may be noted that after the clearance of Parliament, the Constitutional Bill needs to be ratified by 50% of the States.

Conclusion -GST is expected to playa key role in bringing about more transparency into the tax system. Instead of fiscal concessions, concessions to select industries on grounds such as environmental protection etc. could be provided in a transparent manner through cash refunds or otherwise. While unified rate may be there, states may be allowed to charge rates most suitable to them such as on alcohol, petroleum products, etc. A very strong infrastructure network would be required to administer GST which would include facility for online payment of tax and e-filing of returns. The GST as a new levy could be a very effective tool and break. through in indirect tax reforms, provided it is made simple and assessee-friendly – not like the present tax system.

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