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Goods And Service Tax As Proposed
June, 25th 2015

We are going to have a dual GST model. The Center and the States both, will levy GST on supply of goods and services. On Supply of goods and services in the course of Inter-state only Center will levy and collect taxes (IGST) which will be apportioned between Centre and States based on the recommendation of GST Council. The Center will have power to make place of supply rules in this regard. On supply of goods and services in the course of or International trade or commerce, states will not have any power to levy and collect taxes.

For the first two years under GST (or as GST Council would recommend), 1% additional tax apart from GST will be levied on inter-state sale of goods which will be assigned to the state of origin of supply of goods. The rules regarding the place of origin will be formed by the Parliament. The Central Government would also have power to grant exemption to any goods from this tax. The point to be noted here is that this tax is to be levied on goods only, thus the differentiation between goods and services would again resume significance.

The proposed amendment in Article 271 restricts the power of the Central Government to levy any surcharge on the GST. We may therefore, be in a better situation wherein GST will be not be subjected to any surcharge. (cess –we may still have)

Further, tax on petroleum products will be covered in GST except for crude petroleum, high speed diesel, motor spirit, natural gas and aviation turbine fuel. For these five items, GST Council will specify the date from which GST will be levied. Tobacco & tobacco products; supply of newspapers & advertisements; luxuries, betting & gambling and entertainment & amusement are covered under the GST. However, alcoholic liquor for human consumption has been kept out of GST ambit.

The 122nd amendment will come into force from such date which Central Government may appoint by way of notification, after enactment. For enactment, it has to be passed by two-third majority by both houses of the Parliament of those present and simple majority of total membership of both houses. It has to be then approved by one-half of the state Governments, i.e. atleast 15 states. The said Bill has been passed Lok Sabha on 06.05.2015 but could not be passed by Rajya Sabha. The same has now been referred to the Select Committee of the Rajya Sabha.

For GST network, a special purpose company has been incorporated to implement IT back bone of proposed GST. It will provide IT infrastructure and services to various stakeholders including the Union and State Government. It has been set as an as section 25 (not for profit) company under the Companies Act, 1956, non-government private limited company in which Government will retain strategic control.

The Government seems to Committed to ushering in GST w.e.f. April 2016. GST network planned as back-bone in terms of taxpayers interface, a tool for regulators and revenue allocation mechanism for inter-state transactions, will be the key for implementing a successful GST. All interactions with GSTN would be electronic and once the Constitutional Amendment Bill is passed, GST Council will take over the responsibility of every matter concerning GST. The challenge for trade, industry and professionals is soon going to be – how to be GST ready.

Empowered Committee is preparing the ground for the GST Council so that as soon as the GST Bill is passed, it can be implemented without much loss of time.

GST is expected to play a 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.

Not only GST is expected to change the complexion of indirect taxation in India, it will also bring down the prices of goods and services across the board. The consensus among the states (29) and between the Centre and states hold the key. Once consensus is reached, GST may see the light of the day in a year’s time, even during any time of the year, it being a transaction based tax.

While there is no doubt that GST will come, the sooner the better, it should also address the problems in present day taxation i.e., it should seek to achieve rationalization, boost transparency, offer flexibility to Union and states and broaden the much needed tax base. If GST comes into operation, it would achieve the status of integrated and most comprehensive set off tax structure in India leading to enhanced economic activities and tax buoyancy. GST would offer a complete set off and there will be no tax cascading effect as there will be no tax on tax, an ideal proposition for all. Even the Government won’t mind as tax revenues would go up substantially (VAT is a live case).

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