What is GST (Goods and Services Tax) ???

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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.

Benefits

  • 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.

Exception

  • 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.

Key Points

  • 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.
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