The GST (Goods and Services Tax) Bill has had a long and chequered 7 years of deliberation in the Parliament, but it is now as close to reality as it’s ever been.
Here, we answer the most common questions about the GST Bill.
1. What is the GST Bill?
The GST Bill, officially known as the Constitution (122nd Amendment) Bill, 2014, proposes to completely overhaul India’s current tax policy. It will combine all existing indirect taxes (taxes that are collected by an intermediary on behalf of the government) like VAT, service tax, customs, etc., under the GST framework to create a comprehensive national tax on all goods and services. This system would abolish all previous indirect taxes and only GST would be levied.
Around 140 countries around the world have adopted the GST, most of whom prefer a nationally unified system. Given India’s federal structure, the GST bill proposes to split the GST into 3 main components which would be collected separately by the Central and state governments. Since, the Constitution of India grants all states the power to levy taxes inside their borders at its will, GST will cut down that power. Therefore, having this split structure of GST will help ease the shock of states losing their revenue generating abilities through a single, national GST.
2. What are the potential benefits of GST?
GST will cut down the large number of taxes imposed by the Central and state governments, reducing the effective tax rate and simplifying the tax structure. This would create a unified national market, reduce tax evasion and attract more foreign investment by reducing business costs. Meanwhile, the reduction in taxes on essential commodities will be a direct benefit for the public by increasing their purchasing power.
This bill also brings in much-needed changes in the complicated and old tax structure in India, which costs the government a lot of money to administer. The streamlined tax structure would also reduce the government’s costs and increase tax revenue from higher business investment. It is estimated that implementing GST will boost India’s GDP by a massive 2%.
3. What are the downsides of GST?
There’s a vast difference between formulation and implementation of a law. Even after passing the law, implementation will require huge administration changes, adequate IT and clarification with respect to interpretation of laws. It will benefit the end consumer only if the laws and implemented both in letter and spirit. There is also the possibility of inflation in the initial stages of implementation, this needs to be addressed and prepared for.
The biggest issue with the GST bill is that it goes against the grain of India’s federal governance structure, which allows both the Centre and States to have jurisdiction over separate areas of tax and revenue policy. This bill would impinge on the states’ control over their own budgets.
Critics have also questioned the the 5 different tax slabs provisioned under GST – zero rate, 5%, 12%, 18% and 28%, plus be additional cess and levies to be imposed on sin goods (tobacco, liquor, etc) and luxury items.
People have claimed these tax brackets to be much too high and that their mere existence does not go with the spirit of “One Nation, One Tax”. Finance Minister Arun Jaitley justifies this by saying, “Air conditioners and Hawai Chappals cannot be taxed at the same rate. Total tax eventually collected has to be revenue neutral”.
4. Why is there political disagreement on this issue?
Currently, the bill proposes that the Central government will distribute proceeds of GST to the States at its own discretion. This has been vigorously opposed by the states, who are concerned about losing their constitutional right to determine their policies.
It is also a political risk, as the proposed bill would allow the party ruling at the Centre to play favourites with those states that are also ruled by the same party or coalition.
There are also some disputes over the some of the finer details of the bill. Congress is opposing the bill in the current form, demanding the inclusion of a cap on GST rate, while it is also opposed to the 1% additional tax on inter-state transfer of goods and a Supreme Court judge-headed dispute resolution panel.
5. When can we expect this law to be implemented?
On 29th March 2017, all 4 bills related to GST were passed in the Lok Sabha.
The Central GST, Integrated GST, Union Territory GST and the Compensation to States Law were termed as ‘Money Bills’. Thus, making any changes suggested by the Rajya Sabha non binding. Congress leader Veerappa Moily has been protesting against this by calling the Money Bill route to bypass Rajya Sabha “the biggest assault on democracy”. He even called on members of Rajya Sabha to resign in protest.
However, the Government is now all set to implement GST bill throughout the country from 1st July onward. It will be very interesting to watch all the other taxes disappear and only see GST being charged on all your bills from then on.