New Delhi, Aug 2: The long-awaited Good and Services Tax (GST) Bill was deliberated in Rajya Sabha on Wednesday. This Bill is the 122nd Constitutional Amendment and will have to be passed by both the houses of the Parliament with a two-third majority. Its is being hailed as the most important tax reform in the country since 1991. The government argues that the passage of GST would add up to 2 per cent to the economic growth. Also Read - ITR: Income Tax Return Filing Deadline For FY 2019-20 Extended To Dec 31, Check Details
In a rare bipartisan moment, both Congress and the Bharatiya Janata Party (BJP) not only came together, but also complimented each other. Finance Minister Arun Jaitley acknowledged that the idea of GST was first put forward by a the Congress-led UPA government. This acknowledgment was well-received by the opposition. He also thanked the Leader of Opposition, Ghulam Nabi Azad for his party’s support. Also Read - Businesses Not Ready With GST E-invoicing Get 30-day Grace Period
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For its part, the Congress party applauded the government for seeking a consensus and agreeing to the changes recommended by them. “This is far too important a legislation to be passed on a partisan basis,” Congress leader and former Finance Minister P Chidambaram said in the upper house. He reiterated, “I hope the Finance Minister will pass the bill, not on the strength of number but on the strength of his arguments”.
What is Goods and services Tax (GST)
There are two kinds tax in the country direct tax and indirect tax. The present indirect tax regime is multi-layered and fraught with problems. It is very difficult to administer, monitor and comply with provision of taxes. The GST bill plans to declutter the current system and subsume a number of indirect tax. This mainly includes, excise duty, service tax, state VAT and Central state tax. Other taxes that will be replaced are entertainment tax, luxury tax, etc.
GST is based on the same principles as the Value Added Tax (VAT). It is a consumption-based tax, which means instead of being imposed at the point of manufacture, it will be imposed at the point of consumption. Moreover, it does not differentiate between goods and services.
The underlying principle of GST is that it is charged on value addition that takes place on every business stage. In several countries, GST is known as VAT. However, in India the government seeks to introduce a dual-structure GST, i.e. tax will be levied at two levels – Centre and state.
Dual GST struture
Two taxes will be levied; GST by the central government or the Central Good and Services Tax and GST by the state government; State Goods and Services Tax. In case the transaction takes place within a particular state, at every business stage where there is value addition, both CGST and SGST will be charged. On the other hand, an inter-state transaction will allow only the central government to levy the Inter-state Goods and Services Tax or Intergrated Goods and Services Tax (IGST).
The proposed rate stands at 17-18 per cent, with certain items exempted from GST while a concessional rate will be charged for some other essentials. The government has introduced a “sin tax”,wherein items like alcohol, cigarettes, etc, will be charged at a higher rate. The Congress party has demanded that a rate cap of 18 per cent be mentioned in the constitutional amendment bill.
Finance Minister Jaitley has argued that including a rate cap would make it difficult for successive governments to change tax rates in future without the permission of the parliament.
Impact of GST
Initially, GST will lead to inflation but this would be temporary. Moreover, this will lead to better allocation of resources and make Indian manufacturers more competitive in the international market. The price for a commodity paid by someone in, say Tamil Nadu will the same as the price paid for it in any other state. A number of commodities will become cheaper, while some others may become more expensive. GST will replace the entertainment tax, which would significantly bring down the price of movie tickets. The passage of GST will lead to an increase in consumption, hike capital expenditure and therefore boost investment, and also create more jobs. This would support government initiatives like Make in India, Start-up India, etc.
History of GST
In 2000, then-Prime Minister Atat Bihari Vajpayee started the discussion on GST. He set up an empowered committee headed by then-Finance Minister of West Bengal, Asim Dasgupta who remained its chairman till 2011. While delivering the Budget speech in the Lok Sabha, the UPA government in 2005 announced its intentions of introducing a tax based on the principles of VAT which would subsume federal and state taxes.
“In the medium-to-long term, it is my goal that the entire production-distribution chain should be covered by a national VAT, or even better, a Goods and Services Tax encompassing both the Centre and the state,” Chidambaram recalled. The following year, he set April 1, 2010 as the date for implementation of the Goods and Services Tax.
The bill was introduced in 2011 by then-Finance Minister Pranab Mukherjee, but the UPA government failed to bring about a consensus. It was opposed by the opposition parties which included the Left and BJP. With the dissolution of the 15th Lok Sabha, the bill lapsed.
After Narendra Modi-led NDA government was voted into power, Finance Minister Arun Jaitley introduced the GST Bill in December 2014 and set April 1, 2016 as the deadline. It was passed by the Lok Sabha in May 2015 where the BJP and its allies have a majority. However, it was stuck in the Rajya Sabha, where Congress is the largest party.