The Constitution Amendment Bill on Goods and Services Tax (GST) has also been introduced in the Lok Sabha on Friday after the cabinet approval. With this, the way to implement GST across the country has become easier.
GST is considered to be the most important economic reform of this decade. After the introduction of GST, all taxes on goods and services separately will be absorbed into a single tax.
This will bring the prices of goods and services to almost one across the country. Manufacturing costs will come down, making goods cheaper for consumers.
This new system of indirect tax will benefit the economy by Rs 60 lakh crore. Presenting GST, Deepak Mandal’s analysis on its journey so far and the possibility ahead.
What is GST?
GST is a VAT that will be levied on both goods and services. In the current era, VAT only applies to goods. GST will be levied at two levels.
One will be the central GST, while the other will be of the state. This will turn the entire country into an integrated market and most of the indirect taxes will be absorbed in GST.
What will be the benefit
At the Center level, it will be levied by the inclusion of Central Excise, Service Tax and Additional Customs Duty and VAT, entertainment, luxury, lottery tax and electricity at the state level.
The Central Sales Tax (CST) will end. The entry fee and octroi will also end. Due to the imposition of one tax instead of individual tax, the prices of things will decrease and the common consumers will benefit.
The cost of tax recovery of the government will also come down. The GST rate has not been revealed. In most countries it ranges from 14 to 16 per cent.
States feared loss of their revenue and autonomy. The biggest protest was about the tax on petroleum products. 50 percent of the states revenue comes from this.
States were also concerned about the revenue loss due to the abolition of the Central Sales Tax (CST). CST is a tax on inter-state trade.
The tax imposed by the exporting state was reduced from four per cent in 2007 to two per cent.
The Center promised states to make up for it by 2010. But it was discontinued by the Center after 2010. This was the major reason for the protest.
What turned out to be
Since 50% of the states’ revenue comes from the tax on petrochemical products, the Center will not levy tax for three years despite including it in GST to give relief to them.
States can levy tax on it for three years. The Center has promised Rs 11000 crore in this financial year to compensate the states for the loss on payment of CST.
The center will collect tax from the businessmen who have a turnover of Rs 1.5 crore. Taxes on alcohol and tobacco will be collected by the state itself.
What will happen next
GST will come into force from 1 April 2016. The amendments will have to be passed by both the Lok Sabha and the Rajya Sabha after the approval of the Cabinet. After this it will have to seek the support of the state assemblies.
The actual GST bill will then be debated in both houses of Parliament. States will also have to pass the GST bill in their assemblies. GST will be implemented only after this long process.
Earlier, Finance Minister Jaitley took initiative on his part to resolve the dispute regarding GST and promised to compensate the states.
34,000 crore was owed to the states due to CST. For this reason, the State Governments were angry and were obstructing this important reform.