Dr. Sanjiv Agarwal
The Union Government in third week of December, 2014 (19 December, 2014) introduced Constitution (122 Amendment) Bill, 2014 in Parliament which when passed shall pave the way for introduction of proposed Goods and Service Tax (GST) in India.
Contrary to the general perception that this Bill itself is a GST Bill, it is to be very clearly understood that this is not a GST Bill. In fact, GST Bill is not in sight at all at this moment. What has been introduced is the Constitutional Amendment Bill enabling or empowering the Government to levy a tax called GST which it cannot levy under the present Constitution. The Bill on passage would enable the Central Government and the State Governments to levy GST. This tax (GST) shall be levied concurrently by various states as well as Union Government. Once this is passed by two-third majority in the Parliament, atleast 50 percent of the states will have to pass it. Once this amendment is through, the road will be clear for GST Bill (and then Act). Eventually, we will have following taxes –
A newly inserted article 246A provides for special provision with respect to GST.
The Legislature of every State shall have power to make laws with respect to goods and services tax imposed by the Union or by such State. Parliament will have exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.
Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.
Supply of goods or services, or both in the course of import into the territory of India shall be deemed to be supply of goods or services, or both in the course of inter-state trade or commerce.
Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods or of services, or both takes place in the course of inter-state trade or commerce.
The President shall, within sixty days from the date of commencement of the Constitution (One Hundred and Twenty-second Amendment) Act, 2014, by order, constitute a Council to be called the Goods and Services Tax Council.
Going by the present mood, the Government of the day feels that it may be able to introduce GST in India w.e.f. 1st April 2016, replacing a host of indirect taxes presently levied by the centre, states and local bodies. It hopes for the parliamentary nod (two-third majority) in the forthcoming Budget session in February, 2015. This is necessary as the Indian Constitution requires amendment to allow states to tax services and the centre to tax goods at the retail level and to provide legal framework for GST by providing for constitution of a GST Council and dispute settlement mechanism.
One of the major obstacles, Central Sales Tax (CST), has been addressed as the centre has agreed for compensation on account of phasing out of CST. A compensation of Rs. 11,000 crores has been announced to make up for 2 percent reduction in GST rate to 2%. The Central Government has agreed for a five year compensation. Petroleum products shall be included in GST and taxed at zero rate for first three years. States will also be compensated for entry tax which has been agreed to be included in GST. The States also want compensation on account of central sales tax to be paid to them expeditiously before it roll-out from April, 2016.
While the Government claims that there was an over whelming support for the proposals on the Constitutional Amendment for GST which were arrived at in consultations with the states, there are states like Tamilnadu which is opposed to hasty introduction of Constitution Amendment Bill for GST in Parliament without evolving consensus.
There are few states which seek expeditious roll out of GST while others like Tamilnadu still want clarity on GST rates, revenue neutral rates, CST compensation methodology etc State like Gujarat feels that finances of net producing and manufacturing states may come under stress in initial years.
All said and done, introduction of GST is not going to be easy. GST design, structure, IGST, administrative arrangement with states, disputes between centre and states, multiplicity of authorities, different interpretations by various states, standardization of systems and procedures, training, need for huge IT infrastructure etc are some of the concerns which will pose challenge to proposed GST. Common date of introducing GST may also be an issue as few states may not cooperate, given the political compulsions.