What is GST
Goods and Service Tax
GST in India
GST (Goods and Service Tax) is a destination based tax that is applied at the point of supply/ sale of both goods and services. In many countries it is called VAT (Value-Added-Tax). In the current tax scenario in India, Sales Tax is a Value Added Tax.
GST will be a comprehensive tax that would be applied on the production, sale and consumption of both goods and services.
India currently has a wide variety of indirect taxes (i.e., tax that is levied on goods and services rather than on income or profits ) that are
- governed by different laws
- managed/ collected by different authorities
- applicable at different points in the manufacturing to sale cycle
- some are Central Government applied and some are applied by the State Government
With GST, the Government plans to absorb the following currently applicable taxes into one simplified tax - GST:
The following taxes will continue as there is no agreement between the State and Central Governments.
- Purchase tax
- Stamp Duty
- Vehicle Tax
- Electricity Duty
- Entry taxes like octroi, etc
- Levies - petroleum products
- Levies - alcoholic products
- Taxes on betting and lottery
- Basic customs duty
- safeguard duties that are levied on import of goods into India
- Entry taxes that are levied by various municipalities and panchayats
- Entertainment tax
- Luxury tax
Features:
1. GST would be levied where the good/ service is supplied or sold. So,
- as exports are made to a place outside India, exports will not be taxed under GST,
- as the destination of imports is a place within India, imports would be taxed in the same manner as domestic goods and services.
2. The GST has the following components in it
- Central GST (CGST) – the revenue from this will go to the Center
- State GST (SGST) – the revenue from this will go to the States
- Integrated GST (IGST) – for Inter-State transactions within India. The Government at the Center will get the revenue for this tax
- Additional GST of 1% will be levied by Center for Inter-State transactions. Since GST would be collected at the place where the goods/ services are supplied, the states where the goods/ services are manufactured stand to loose out on a lot of tax revenue. The revenue collected from this part of the GST would be assigned to the origin states so that they are partially compensated for their losses. The Government proposes to levy the additional GST for the first 2 years or for a period recommended by the GST Council.
3. Since GST is a value added tax, it is applicable on the value that is added at each point in the supply chain. At the payment time, the tax payer can credit any GST that has been paid earlier in the chain as follows (in the same order as mentioned):
- IGST -> IGST, CGST and SGST
- CGST -> CGST and IGST
- SGST -> SGST and IGST
4. GST would comprehensively apply to both goods and services with no differentiation between taxable goods and taxable services.
5. The exemptions on GST would be restricted to a minimum.
6. The tax has a common base with common rates (for both goods and services) and very similar rates (across States and between Centre and States)
7. The administrative power would be vested with a single authority.
8. A lower GST rate is proposed for items that are of basic importance. A standard GST rate is proposed for goods and services, in general. A special GST rate is proposed for precious metals, and for a list of exempted items.
9. The government has set up a GST committee under Arvind Subramanian (Chief-Economic-Adviser & Chairman of the Committee). On December 4, 2015, the committee came out with a report suggesting that the Revenue Neutral Rate (RNR) should be established between 15 % - 15.5% (for both Centre and State). The committee prefered that the rate should be 15%. RNR is the tax rate, at which the current level of tax revenue can be maintained.
10. The periodical returns would have a common format for both Central and State GST authorities.
11. The number for taxpayer identification would be PAN-linked, having a total of 13 to 15 characters.
Example:
Total Tax paid is 494/-
Total Tax paid is 375/-
The process of Law:
Taxes in India are governed by the Constitution of India. Since Goods and Services Tax(GST) is a new tax proposed to replace a wide variety of existing taxes, an amendment is required to the Constitution of India. The current Government of India is trying to pass the 122nd Amendment Bill for replacing some of the current taxes with the new GST. To pass the Amendment Bill, the following steps should be followed:
1. First, the Bill should be tabled-in and passed by the Lok Sabha (the the lower house of the Parliament). The Lok Sabha has already passed the Bill on May 6th, 2015.
2. After the the Bill is passed by the Lok Sabha, it is sent to Rajya Sabha (the higher house of the Parliament). The Rajya Sabha has sent the Bill to a Select Committee for recommendations on May 14, 2015. The Select Committee sent the reccomendation on Jul 22, 2015 approving all the clauses of the Bill, but subject to the following modifications:
- For the purpose of levying the additional tax of 1% for inter-State supply, the term “supply” should mean only those supplies that are made for a consideration. It does not include branch transfers etc;
- Compensation for the loss of revenue to the States because of GST should be given for at least a period of 5 years;
- GST Council should have the power to suggest GST rates within a band while the GST law would define the band.
The Congress party has a majority in the Rajya Sabha and it would not pass the Bill in the Winter Session of the Parliament because it had the following three demands:
- there should be a cap on the tax rate at 18%
- remove 1% inter-state tax
- create an independent process to settle any disputes/ disagreements in the GST Council.
The Government is negotiating with the Congress and the Prime Minster has met Sonia Gandhi and Manmohan Singh from the Congress to discuss their concerns.
The Government plans to get the Bill passed by the Rajya Sabha in the next session of the Parliament, which also happens to be the Budget Session. The Budget session may start in the second half of February.
For the Bill to be passed, it should get at the least two-third majority in the Rajya Sabha.
3. After the Bill is passed by the Rajya Sabha, it should be ratified in the Assemblies of at least 15 States.
4. Only after this ratification, the President of India can give his permission to enact the Bill.
Within 60 days after getting the permission from the President, a GST Council that is made up of representatives from both, the Central and State Governments, will be formed to draft
1. Goods & Service Tax laws
2. tax rates including floor rates with bands of goods & service tax
3. Place of Supply rules – GST is a destination tax and is applicable at the point of delivery/ sale. These rules will help determine
- the supply location of goods or services
- whether the supply is intra-state or inter-state.
Already reports made by the Joint Committee that was constituted by the Empowered Committee of State Finance Ministers on the business processes of payment, registration refund and returns under GST have been released and put in public domains for suggestions.
After the law and rules are made, the GST IT Network will be launched, that will allow for online
- registration,
- tax payment and
- return filing.
The States also have to simultaneously make their own GST Legislations for implementing the State level GST. The State Legislations should be in line with the Central GST Legislation.
If everything goes well, then the Government plans to introduce the tax from April 1st, 2016. Now, with the delay in Rajya Sabha, this date may also be delayed.
Impact of GST:
- GST is one of the most biggest and important reforms of independent India. With GST, the entire Indirect tax structure of India would undergo a major rationalization which will make it simple.
- Since the number of applicable taxes are reduced, there could be a reduction in total tax payable, though the GST rate is high.
- Since tax is applied at the same rate irrespective of the source of the goods/ service, there could be a change in how the supply chains would be designed/managed in the future.
By Pratibha Nanduri
