GST - Key issues for debate

GST - Key issues for debate

Q.3: GST has been debated for some time now. Even as the parliament prepares for a discussion on this issue, discuss the key points surrounding the debate.

• Goods and Services Tax is on the finance agenda of the NDA government; Finance Ministry says it will raise the GDP of India by 1 to 2%

• It is known officially as the Constitution (One Hundred and Twenty-Second Amendment) Bill 2014.

• It was introduced in LS on December 19th, 2014 by the FM

• Bill seeks management of constitution for introduction of GST which subsumes numerous Central Indirect Taxes such as:

- Central Excise Duty
- Countervailing Duty
- Service Tax
- and so on.
- GST also subsumes State VAT, OCTROI and entry tax plus luxury tax

• Bill replaces the 115th CA bill introduced by UPA government in march 2011

• This bill enables states and centre to introduce law for the levying of GST on supply of goods and services. Under this regime, there will be a central GST law and one state GST law for the states

Key Issues

1. Firstly GST is not defined completely: Term GST is defined in Article 366/12A as "any tax on supply of goods or services or both except taxes on supply of the alcoholic liquor for human consumption.”

• Supply of goods or services will attract central and state GST unless kept out of GST, which will cause taxable events such as manufacture and sale to loose their relevance

• This raises the question of whether free supply will attract GST

• The 115th Constitution Amendment Bill also does not provide for a definition of the term service. Latest bill says it means anything other than goods

2. Inter-state supply of goods attract CST; bill provides that inter-state supply of goods or services will attract IGST which is CGST plus ISGST
This will be levied and collected by the Centre and proceeds should be shared between the Centre and the States

3. Inter-state sale of goods will also attract additional tax; bill holds that additional tax up to 1% will be levied by the Centre on the inter state supply of goods and not services; additional tax applicable for 2 years will be assigned to states from where the goods supply comes; The GST Council could extend beyond 2 years

4. Bill does not specify whether credit of additional levy will be available or it will be a cost in supply chain; in case of latter, it could exert cascading effect on supply chain

5.Import of goods or services: Currently, this attracts BCD/basic customs duty, ACD/additional customs duty and special additional customers duty/SAD

• Import of service attracts service tax or even R&D in some cases

• Bill holds that import of goods/services will be deemed as supply of goods or services or both

• Through inter-state trade or commerce, IGST will be attracted, therefore import of goods will attract BCD and IGST while that of services will attract IGST

6. Alcohol for human consumption is being kept out of the GST regime which means companies manufacturing alcohol will not be able to avail credit of GST paid by them on procurements

7. Petrol and tobacco products will attract excise duty while Bill specifically states petrol products will not attract GST

GST Council may decide on a later date regarding levy of GST on petrol products

8. Role of GST Council: This has not been specified. What is also not clear:

• What Model GST will look like
• Which taxes, cesses and surcharges to be subsumed under GST
• Goods and services which are subject to or exempt from GST
• Rate of GST includes floor rates or not
• The threshold limit of GST

9. Bill does not provide for compensation to states: Bill provides that recommendation of GST Council should provide for compensation to states for loss of revenue coming from implementation of GST up to 5 years . Loss of revenue remains a major concern for states

Facts and Stats

• Bill inserts a new article in the constitution to ensure legislation on taxation of goods and services is a concurrent power of the Centre and States

• Bill shifts restriction on states for taxing sale or purchase of goods to supply of goods or services

• GST Council is to decide which taxes levied by Centre, States and local bodies will go into GST; which goods and services will undergo GST and basis and rates of applying GST

• Centre will levy extra 1% tax on supply of goods in course of inter-state trade which will go to states for two years or till the period decided by the GST council

• Parliament can make the decision regarding states compensation for 5 year period if states incur losses through GST implementation
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