What is GST (Goods and Services Tax) ???
Centre has tabled the much-hyped Goods and Services Tax (GST) Bill in the Lok Sabha.
The legislation seeks to create a single and unified tax regime in the country putting an end to complicated system of taxation where multiple agencies levy tax on the same item/service one after another.
The Bill - a constitutional amendment (122nd) - is believed to boost the economy by placing a business-friendly economic structure.
Being a constitutional amendment, it needs two-third majority in Parliament in addition to ratification by over half of all the state legislatures.
- It will create a single and unified economy in which taxes will be levied on a national basis - some by states, rest by centre in a clearly defined manner.
- This will make doing business easier in the country - by improving transparency and efficiency.
- This is likely to improve tax collections.
- GST will be is levied only at the destination point, and not at various points (from manufacturing to retail outlets).
- If it gets passed - the new regime will take effect from April 2016.
What kind of taxes it will replace?
- Central excise, state VAT, entertainment tax, octroi, entry tax, luxury tax and purchase tax on goods and services.
- Liquor has been kept totally out of the system whereas inclusion of petroleum products like petrol and diesel will have transitional arrangements.
Who will govern the new structure?
- GST Council - a statutory body - has been created with one-third representation from centre while the rest two-third come from the states.
- Any decisions regarding the GST structure will require 3/4 majority - giving none of the two stakeholders absolute power to tinker with the system.
- The council will decide the items/services on which the tax will apply for any given period.
- The legislation has been in the pipeline since the days of UPA-2 (2011).
- States - fearing loss of revenue - were against GST.
- To speed up the implementation - Centre has had to concede many points to state in lieu of their support.
- Centre has agreed to give compensation to such states for a period of five years - in the following way - 100 per cent for first three years, 75 per cent in the fourth, going down to 50 per cent for the fifth one.
- Petroleum products will be levied at zero rate - meaning that the states will continue to levy VAT while Centre will exhort excise duty for initial few (5?) years.
- The states where goods originate can levy 1 per cent additional tax over GST to make up for any revenue loss for the first two years.
Will it lead to price rise?
- On the contrary it may do the opposite thanks to the expected decline in tax-corruption.
- However, the system needs some time to settle for the prices to stabilise.