New Delhi, Nov 28 (IT) : The Good and Services Tax is the biggest indirect tax reform since 1947. This will be levied on manufacture sale and consumption of goods and services.
In the words of the Finance Minister Arun Jaitley, the GST bill will lead to the economic integration of India.
The main function of the GST is to transform India into a uniform market by breaking the current fiscal barrier between states. Thus the GST will facilitate a uniform tax levied on goods and services across the country.
Currently, the indirect tax system in India is complicated with overlapping taxes levied by the Centre and the State separately.
Framework of the GST will replace indirect taxes
The GST will have a 'dual' structure, which means it will have two components- the Central GST and the State GST. They will both have separate powers to legislate and administer their respective taxes. Thus equally empowering both.
Taxes such as excise duty, service, central sales tax, VAT ( value added tax), entry tax or octroi will all be subsumed by the GST under a single umbrella.
With passing of the GST bill, we can expect a climate of improved tax compliance.
Thus, the GST will basically have only three kinds of taxes, Central, State and another called the integrated GST to tackle inter-state transactions.
When is the proposed GST set to start functioning and what are the hurdles?
The GST regime is intended to be functional from 1st April, 2016.
The first mention of the bill was in 2009 when the previous UPA government opened a discussion on it. They were successful in introducing the bill but failed to get it passed.
On 17th December 2014, the NDA government made slight changes to it and redefined it in the Lok Sabha. The bill got cleared on May 6th this year.
However the current challenge facing the bill is that it needs two-third majority of both houses and 50 percent of the state assemblies will have to ratify it.
The bill is now stuck in the Rajya Sabha, because the current government does not hold a majority here.
The role of the opposition
The Congress demands for reforms in key areas of the GST has been stalling the process of passing the bill.
Three main concerns of the Congress over the bill are:
-one per cent additional tax as goods move across states
-the constitutional cap of 18 per cent and an independent dispute redressal mechanism.
-the party has maintained that the government was ignoring the concerns raised by the party on the legislation.
They want the Bill to be referred to a Select Committee for review.
The impact and relevance of the GST bill
According to Finance Minister Arun Jaitlety the GST will be instrumental in helping the GDP of India to grow by 2 percent.
The GST also offers a solution to the multinationals as it breaks down the indirect tax structure into one single tax payable by the companies.
Although the states have feared loss of fiscal powers, the Constitutional amendment bill has promised to solve this by giving compensation packages for three years for any kind of revenue loss.
The bill has proposed to have GST council wherein all union and state minister in charge of finance will be on a equal footing. It will also have a Dispute Settlement authority to mitigate the tensions between the centre and state smoothly.
One main contention for the state in the GST is the inclusion of petroleum products. The current consensus on this is that the states will continue to levy sales tax/VAT on these with the exception of imports and inter-state trade.
With the Modi government walking that extra mile to get consensus on implementation of the GST, we have to hold our breaths till it is functional by the proposed deadline of April 1st 2016.