Rajya
Sabha Passes GST Bill
In the biggest tax reform since Independence, the
national sales tax or GST Bill was approved by the Rajya Sabha to replace a
raft of different state and local taxes with a single unified value added tax
system to turn the country into world's biggest single market.
The 66-year-old Constitution, which gives power to
Centre to levy taxes like excise, and empowers states to collect retail sales
taxes, was amended though the 122nd Constitution Amendment Bill.
Prime Minister Narendra Modi said the GST will
"also be the best example of cooperative federalism" and
"Together we will take India to new heights of progress".
The legislation was approved by the Upper House with
203 votes in favour and none against, after a seven-hour debate during which a
rare bonhomie was witnessed among the ruling and the opposition parties.
He also asked the Government not to convert the
subsequent GST laws into money bills to bypass Rajya Sabha. Money bills do not
require approval of the Upper House and their mere passage in the Lok Sabha,
where the ruling NDA has absolute majority, is enough for converting it into a
law. His twin demands found favour with other opposition leaders including
Sitaram Yechury (CPIM), Naresh Agarwal (SP). AIADMK was the only party which
opposed the GST in totality.
The Constitution Amendment Bill had been approved by
the Lok Sabha in May last year but the amendments made to it by the Rajya Sabha
would mean the legislation would again travel to the Lower House before going
to states assemblies.
What is GST? How does it work?
GST is one indirect tax for the whole
nation, which will make India one unified common market.
GST is a single tax on the supply of goods
and services, right from the manufacturer to the consumer. Credits of input
taxes paid at each stage will be available in the subsequent stage of value
addition, which makes GST essentially a tax only on value addition at each
stage. The final consumer will thus bear only the GST charged by the last
dealer in the supply chain, with set-off benefits at all the previous stages.
What are the benefits of GST?
The
benefits of GST can be summarized as under:
· For
business and industry
o Easy
compliance:
A robust and comprehensive IT system would be the foundation of the GST regime
in India. Therefore, all tax payer services such as registrations, returns,
payments, etc. would be available to the taxpayers online, which would make
compliance easy and transparent.
o Uniformity
of tax rates and structures: GST will ensure that indirect tax rates
and structures are common across the country, thereby increasing certainty and
ease of doing business. In other words, GST would make doing business in the
country tax neutral, irrespective of the choice of place of doing business.
o Removal
of cascading: A system of seamless tax-credits throughout the
value-chain, and across boundaries of States, would ensure that there is
minimal cascading of taxes. This would reduce hidden costs of doing business.
o Improved
competitiveness: Reduction in transaction costs of doing business
would eventually lead to an improved competitiveness for the trade and
industry.
o Gain
to manufacturers and exporters: The subsuming of major Central and State
taxes in GST, complete and comprehensive set-off of input goods and services
and phasing out of Central Sales Tax (CST) would reduce the cost of locally
manufactured goods and services. This will increase the competitiveness of
Indian goods and services in the international market and give boost to Indian
exports. The uniformity in tax rates and procedures across the country will
also go a long way in reducing the compliance cost.
· For
Central and State Governments
o Simple
and easy to administer: Multiple indirect taxes at the Central
and State levels are being replaced by GST. Backed with a robust end-to-end IT
system, GST would be simpler and easier to administer than all other indirect
taxes of the Centre and State levied so far.
o Better
controls on leakage: GST will result in better tax compliance
due to a robust IT infrastructure. Due to the seamless transfer of input tax
credit from one stage to another in the chain of value addition, there is an
in-built mechanism in the design of GST that would incentivize tax compliance
by traders.
o Higher
revenue efficiency: GST is expected to decrease the cost of
collection of tax revenues of the Government, and will therefore, lead to
higher revenue efficiency.
· For
the consumer
o Single
and transparent tax proportionate to the value of goods and services: Due
to multiple indirect taxes being levied by the Centre and State, with
incomplete or no input tax credits available at progressive stages of value
addition, the cost of most goods and services in the country today are laden
with many hidden taxes. Under GST, there would be only one tax from the
manufacturer to the consumer, leading to transparency of taxes paid to the
final consumer.
o Relief
in overall tax burden: Because of efficiency gains and
prevention of leakages, the overall tax burden on most commodities will come
down, which will benefit consumers.
Which taxes at the Centre and State level are being
subsumed into GST?
At the Central level, the
following taxes are being subsumed:
a. Central
Excise Duty,
b. Additional
Excise Duty,
c. Service
Tax,
d. Additional
Customs Duty commonly known as Countervailing Duty, and
e. Special
Additional Duty of Customs.
At the State level, the
following taxes are being subsumed:
a. Subsuming
of State Value Added Tax/Sales Tax,
b. Entertainment
Tax (other than the tax levied by the local bodies), Central Sales Tax (levied
by the Centre and collected by the States),
c. Octroi
and Entry tax,
d. Purchase
Tax,
e. Luxury
tax, and
f. Taxes
on lottery, betting and gambling.
What are the major chronological events that have led
to the introduction of GST?
GST
is being introduced in the country after a 13 year long journey since it was
first discussed in the report of the Kelkar Task Force on indirect taxes. A
brief chronology outlining the major milestones on the proposal for
introduction of GST in India is as follows:
a. In
2003, the Kelkar Task Force on indirect tax had suggested a comprehensive Goods
and Services Tax (GST) based on VAT principle.
b. A
proposal to introduce a National level Goods and Services Tax (GST) by April 1,
2010 was first mooted in the Budget Speech for the financial year 2006-07.
c. Since
the proposal involved reform/ restructuring of not only indirect taxes levied
by the Centre but also the States, the responsibility of preparing a Design and
Road Map for the implementation of GST was assigned to the Empowered Committee
of State Finance Ministers (EC).
d. Based
on inputs from Govt of India and States, the EC released its First Discussion
Paper on Goods and Services Tax in India in November, 2009.
e. In
order to take the GST related work further, a Joint Working Group consisting of
officers from Central as well as State Government was constituted in September,
2009.
f. In
order to amend the Constitution to enable introduction of GST, the Constitution
(115th Amendment) Bill was introduced in the Lok Sabha in March 2011. As per
the prescribed procedure, the Bill was referred to the Standing Committee on
Finance of the Parliament for examination and report.
g. Meanwhile,
in pursuance of the decision taken in a meeting between the Union Finance
Minister and the Empowered Committee of State Finance Ministers on 8th
November, 2012, a ‘Committee on GST Design’, consisting of the officials of the
Government of India, State Governments and the Empowered Committee was
constituted.
h. This
Committee did a detailed discussion on GST design including the Constitution
(115th) Amendment Bill and submitted its report in January, 2013. Based on this
Report, the EC recommended certain changes in the Constitution Amendment Bill
in their meeting at Bhubaneswar in January 2013.
i. The
Empowered Committee in the Bhubaneswar meeting also decided to constitute three
committees of officers to discuss and report on various aspects of GST as
follows:-
(a) Committee
on Place of Supply Rules and Revenue Neutral Rates;
(b) Committee
on dual control, threshold and exemptions;
(c) Committee
on IGST and GST on imports.
j. The
Parliamentary Standing Committee submitted its Report in August, 2013 to the
Lok Sabha. The recommendations of the Empowered Committee and the
recommendations of the Parliamentary Standing Committee were examined in the
Ministry in consultation with the Legislative Department. Most of the
recommendations made by the Empowered Committee and the Parliamentary Standing Committee
were accepted and the draft Amendment Bill was suitably revised.
k. The
final draft Constitutional Amendment Bill incorporating the above stated
changes were sent to the Empowered Committee for consideration in September
2013.
l. The
EC once again made certain recommendations on the Bill after its meeting in
Shillong in November 2013. Certain recommendations of the Empowered Committee
were incorporated in the draft Constitution (115th Amendment) Bill. The revised
draft was sent for consideration of the Empowered Committee in March, 2014.
m. The
115th Constitutional (Amendment) Bill, 2011, for the introduction of GST
introduced in the Lok Sabha in March 2011 lapsed with the dissolution of the
15th Lok Sabha.
n. In
June 2014, the draft Constitution Amendment Bill was sent to the Empowered
Committee after approval of the new Government.
o. Based
on a broad consensus reached with the Empowered Committee on the contours of
the Bill, the Cabinet on 17.12.2014 approved the proposal for introduction of a
Bill in the Parliament for amending the Constitution of India to facilitate the
introduction of Goods and Services Tax (GST) in the country. The Bill was
introduced in the Lok Sabha on 19.12.2014, and was passed by the Lok Sabha on
06.05.2015. It was then referred to the Select Committee of Rajya Sabha, which
submitted its report on 22.07.2015.
How would GST be administered in India?
Keeping in mind the federal
structure of India, there will be two components of GST – Central GST (CGST)
and State GST (SGST). Both Centre and States will simultaneously levy GST
across the value chain. Tax will be levied on every supply of goods and
services. Centre would levy and collect Central Goods and Services Tax (CGST),
and States would levy and collect the State Goods and Services Tax (SGST) on
all transactions within a State. The input tax credit of CGST would be
available for discharging the CGST liability on the output at each stage.
Similarly, the credit of SGST paid on inputs would be allowed for paying the
SGST on output. No cross utilization of credit would be permitted.
How would a particular transaction of goods and
services be taxed simultaneously under Central GST (CGST) and State GST (SGST)?
The
Central GST and the State GST would be levied simultaneously on every
transaction of supply of goods and services except on exempted goods and
services, goods which are outside the purview of GST and the transactions which
are below the prescribed threshold limits. Further, both would be levied on the
same price or value unlike State VAT which is levied on the value of the goods
inclusive of Central Excise.
Will cross utilization of credits between goods and
services be allowed under GST regime?
Cross
utilization of credit of CGST between goods and services would be allowed.
Similarly, the facility of cross utilization of credit will be available in
case of SGST. However, the cross utilization of CGST and SGST would not be
allowed except in the case of inter-State supply of goods and services under
the IGST model which is explained in answer to the next question.
How will be Inter-State Transactions of Goods and Services be taxed under GST
in terms of IGST method?
In
case of inter-State transactions, the Centre would levy and collect the
Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods
and services under Article 269A (1) of the Constitution. The IGST would roughly
be equal to CGST plus SGST. The IGST mechanism has been designed to ensure
seamless flow of input tax credit from one State to another. The inter-State
seller would pay IGST on the sale of his goods to the Central Government after
adjusting credit of IGST, CGST and SGST on his purchases (in that order). The
exporting State will transfer to the Centre the credit of SGST used in payment
of IGST. The importing dealer will claim credit of IGST while discharging his
output tax liability (both CGST and SGST) in his own State. The Centre will
transfer to the importing State the credit of IGST used in payment of
SGST.Since GST is a destination-based tax, all SGST on the final product will
ordinarily accrue to the consuming State.
How will IT be used for the implementation of GST?
For
the implementation of GST in the country, the Central and State Governments
have jointly registered Goods and Services Tax Network (GSTN) as a
not-for-profit, non-Government Company to provide shared IT infrastructure and
services to Central and State Governments, tax payers and other stakeholders.
The key objectives of GSTN are to provide a standard and uniform interface to
the taxpayers, and shared infrastructure and services to Central and State/UT governments.
GSTN
is working on developing a state-of-the-art comprehensive IT infrastructure
including the common GST portal providing frontend services of registration,
returns and payments to all taxpayers, as well as the backend IT modules for
certain States that include processing of returns, registrations, audits,
assessments, appeals, etc. All States, accounting authorities, RBI and banks,
are also preparing their IT infrastructure for the administration of GST.
There would no manual filing of returns. All taxes can also be paid online. All
mis-matched returns would be auto-generated, and there would be no need for
manual interventions. Most returns would be self-assessed.
How will imports be taxed under
GST?
The
Additional Duty of Excise or CVD and the Special Additional Duty or SAD
presently being levied on imports will be subsumed under GST. As per
explanation to clause (1) of article 269A of the Constitution, IGST will be
levied on all imports into the territory of India. Unlike in the present
regime, the States where imported goods are consumed will now gain their share
from this IGST paid on imported goods.
What are the major features of the Constitution (122nd Amendment)
Bill, 2014?
The salient features of the Bill are as
follows:
g. Conferring
simultaneous power upon Parliament and the State Legislatures to make laws
governing goods and services tax;
h. Subsuming
of various Central indirect taxes and levies such as Central Excise Duty,
Additional Excise Duties, Service Tax, Additional Customs Duty commonly known
as Countervailing Duty, and Special Additional Duty of Customs;
i. Subsuming
of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax
levied by the local bodies), Central Sales Tax (levied by the Centre and
collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, and
Taxes on lottery, betting and gambling;
j. Dispensing
with the concept of ‘declared goods of special importance’ under the
Constitution;
k. Levy
of Integrated Goods and Services Tax on inter-State transactions of goods and
services;
l. GST
to be levied on all goods and services, except alcoholic liquor for human
consumption. Petroleum and petroleum products shall be subject to the levy of
GST on a later date notified on the recommendation of the Goods and Services
Tax Council;
m. Compensation
to the States for loss of revenue arising on account of implementation of the
Goods and Services Tax for a period of five years;
n. Creation
of Goods and Services Tax Council to examine issues relating to goods and
services tax and make recommendations to the Union and the States on parameters
like rates, taxes, cesses and surcharges to be subsumed, exemption list and
threshold limits, Model GST laws, etc. The Council shall function under the
Chairmanship of the Union Finance Minister and will have all the State
Governments as Members.
What are the major features of the proposed
registration procedures under GST?
The
major features of the proposed registration procedures under GST are as
follows:
i. Existing
dealers:
Existing VAT/Central excise/Service Tax payers will not have to apply afresh
for registration under GST.
ii. New
dealers:
Single application to be filed online for registration under GST.
iii. The
registration number will be PAN based and will serve the purpose for Centre and
State.
iv. Unified
application to both tax authorities.
v. Each
dealer to be given unique ID GSTIN.
vi. Deemed
approval within three days.
vii. Post
registration verification in risk based cases only.
What are the major features of the proposed returns
filing procedures under GST?
The major features of
the proposed returns filing procedures under GST are as follows:
a. Common
return would serve the purpose of both Centre and State
Government.
b. There
are eight forms provided for in the GST business processes for filing for
returns. Most of the average tax payers would be using only four forms for
filing their returns. These are return for supplies, return for purchases,
monthly returns and annual return.
c. Small
taxpayers:
Small taxpayers who have opted composition scheme shall have to file return on
quarterly basis.
d. Filing
of returns shall be completely online. All taxes can also be paid online.
What are the major features of the proposed payment
procedures under GST?
Answer:The major features of the proposed
payments procedures under GST are as follows:
i. Electronic
payment process- no generation of paper at any stage
ii. Single
point interface for challan generation- GSTN
iii. Ease
of payment – payment can be made through online banking, Credit Card/Debit
Card, NEFT/RTGS and through cheque/cash at the bank
iv. Common
challan form with auto-population features
v. Use
of single challan and single payment instrument
vi. Common
set of authorized banks
vii. Common
Accounting Codes
.jpg)