Proposed GST - Will it finally happen? - Dr Sanjiv Agarwal
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The document discusses the proposed introduction of the Goods and Services Tax (GST) in India, detailing the constitutional amendment bill that enables the central and state governments to levy the tax. It outlines the structure of GST, which includes a dual model where both levels of government can impose their taxes, and addresses potential revenue loss compensation for states during its implementation. The document emphasizes the challenges and complexities involved in adopting GST, including the need for consensus among states, a unified approach, and adequate infrastructure for effective implementation.
![Volume X Part 1 January 10, 2015 10 Business Advisor
Proposed GST: Will it finally happen?
Dr Sanjiv Agarwal
In Budget 2014-15, announcements were made that
focus in the ensuing year would be on approval of the
legislative scheme for the introduction of GST.
However, no clear commitments were made in this
regard so far. The Union Government in third week of
December, 2014 (19 December, 2014) introduced
Constitution (122nd Amendment) Bill, 2014 in
Parliament which when passed shall pave the way for
introduction of proposed Goods and Service Tax (GST)
in India. This is an improvised version of lapsed 115th Amendment Bill of
2011.
Contrary to the general perception amongst many quarters that this Bill
itself is a GST Bill, let it be very clearly understood that this is not a GST
Bill. In fact, GST Bill is not in sight at all at this point in time. What has
been introduced is only the Constitutional Amendment Bill enabling or
empowering the union Government to levy a tax to be called GST which it
cannot levy under the present Constitution. The Bill on passage would
enable the Central Government and the State Governments to levy GST.
This tax (GST) shall be levied concurrently by various states as well as
Union Government. Once this is passed by two-thirds majority in the
Parliament, at least 50 percent of the states will have to pass it. Once this
amendment is through, the road will be clear for GST Bill (and then Act),
given the political will. Eventually, we will then have the following taxes –
National level GST [Central GST (CGST) and Inter-state GST (IGST)]
State Level GST (SGST)
What is the proposed Constitutional Amendment?
A newly inserted article 246A in the Constitution shall provide for special
provision with respect to GST. According to the Bill, the following important
clauses of the Bill are worth noting:
(a) Clause 246A
The Legislature of every State shall have power to make laws with respect to
goods and services tax imposed by the Union or by such State. Parliament
will have exclusive power to make laws with respect to goods and services](https://image.slidesharecdn.com/proposedgst-willitfinallyhappen-drsanjivagarwal-150114075709-conversion-gate01/85/Proposed-GST-Will-it-finally-happen-Dr-Sanjiv-Agarwal-1-320.jpg)
![Volume X Part 1 January 10, 2015 12 Business Advisor
(g) special provision with respect to the States of Arunachal Pradesh, Assam,
Jammu and Kashmir, Manipur; Meghalaya, Mizoram, Nagaland, Sikkim,
Tripura, Himachal Pradesh and Uttarakhand; and
(h) any other matter relating to the goods and services tax, as the Council
may decide.
What will the Goods & Service Tax Council do?
Apart from aforementioned recommendations, GST Council shall undertake
the following–
(a) The Goods and Services Tax Council shall recommend the date on which
the goods and services tax be levied on petroleum crude, high speed
diesel, motor spirit (commonly known as petrol), natural gas and aviation
turbine fuel. While discharging the functions conferred by this article,
the Goods and Services Tax Council shall be guided by the need for a
harmonised structure of goods and services tax and for the development
of a harmonised national market for goods and services.
(b) The Goods and Services Tax Council shall determine the procedure in
the performance of its functions.
(c) The Goods and Services Tax Council may decide about the modalities to
resolve disputes arising out of its recommendations.
Meaning of Goods/ Services/ GST
The amendment Bill defines these terms-
“goods” includes all materials, commodities, and articles; [article 366
(12)]
“services” means anything other than goods; [article 366 (26A)]
“goods and services tax” means any tax on supply of goods or services or
both except taxes on the supply of the alcoholic liquor for human
consumption; [article 366 (12A)].
„Goods‟ and „Services‟ are otherwise defined in other enactments such as
Central Excise Act, 1944, Sale of Goods Act, 1938, The Finance Act, 1994
(Service Tax) etc.
Loss of revenue/ compensation
Parliament may, by law, on the recommendation of the Goods and Services
Tax Council, provide for compensation or loss of revenue on implementation
of the goods and services tax for such period which may extend to five years.](https://image.slidesharecdn.com/proposedgst-willitfinallyhappen-drsanjivagarwal-150114075709-conversion-gate01/85/Proposed-GST-Will-it-finally-happen-Dr-Sanjiv-Agarwal-3-320.jpg)
Proposed GST - Will it finally happen? - Dr Sanjiv Agarwal
- 1. Volume X Part 1 January 10, 2015 10 Business Advisor Proposed GST: Will it finally happen? Dr Sanjiv Agarwal In Budget 2014-15, announcements were made that focus in the ensuing year would be on approval of the legislative scheme for the introduction of GST. However, no clear commitments were made in this regard so far. The Union Government in third week of December, 2014 (19 December, 2014) introduced Constitution (122nd Amendment) Bill, 2014 in Parliament which when passed shall pave the way for introduction of proposed Goods and Service Tax (GST) in India. This is an improvised version of lapsed 115th Amendment Bill of 2011. Contrary to the general perception amongst many quarters that this Bill itself is a GST Bill, let it be very clearly understood that this is not a GST Bill. In fact, GST Bill is not in sight at all at this point in time. What has been introduced is only the Constitutional Amendment Bill enabling or empowering the union Government to levy a tax to be called GST which it cannot levy under the present Constitution. The Bill on passage would enable the Central Government and the State Governments to levy GST. This tax (GST) shall be levied concurrently by various states as well as Union Government. Once this is passed by two-thirds majority in the Parliament, at least 50 percent of the states will have to pass it. Once this amendment is through, the road will be clear for GST Bill (and then Act), given the political will. Eventually, we will then have the following taxes – National level GST [Central GST (CGST) and Inter-state GST (IGST)] State Level GST (SGST) What is the proposed Constitutional Amendment? A newly inserted article 246A in the Constitution shall provide for special provision with respect to GST. According to the Bill, the following important clauses of the Bill are worth noting: (a) Clause 246A The Legislature of every State shall have power to make laws with respect to goods and services tax imposed by the Union or by such State. Parliament will have exclusive power to make laws with respect to goods and services
- 2. Volume X Part 1 January 10, 2015 11 Business Advisor tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce. (b) Clause 269A Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council. Supply of goods or services, or both, in the course of import into the territory of India shall be deemed to be supply of goods or services, or both, in the course of inter-state trade or commerce. Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods or of services, or both takes place in the course of inter-state trade or commerce. (c) Clause 279A The President shall, within sixty days from the date of commencement of the Constitution (One Hundred and Twenty-second Amendment) Act, 2014, by order, constitute a Council to be called the Goods and Services Tax Council. (d) Clause 279A The Goods and Services Tax Council shall make recommendations to the Union and the States on - (a) the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax; (b) the goods and services that may be subjected to, or exempted from the goods and services tax; (c) model Goods and Services Tax Laws, principles of levy, apportionment of integrated Goods and Services Tax and the principles that govern the place of supply; (d) the threshold limit of turnover below which goods and services may be exempted from goods and services tax; (e) the rates including floor rates with bands of goods and services tax; (f) any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster;
- 3. Volume X Part 1 January 10, 2015 12 Business Advisor (g) special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur; Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and (h) any other matter relating to the goods and services tax, as the Council may decide. What will the Goods & Service Tax Council do? Apart from aforementioned recommendations, GST Council shall undertake the following– (a) The Goods and Services Tax Council shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel. While discharging the functions conferred by this article, the Goods and Services Tax Council shall be guided by the need for a harmonised structure of goods and services tax and for the development of a harmonised national market for goods and services. (b) The Goods and Services Tax Council shall determine the procedure in the performance of its functions. (c) The Goods and Services Tax Council may decide about the modalities to resolve disputes arising out of its recommendations. Meaning of Goods/ Services/ GST The amendment Bill defines these terms- “goods” includes all materials, commodities, and articles; [article 366 (12)] “services” means anything other than goods; [article 366 (26A)] “goods and services tax” means any tax on supply of goods or services or both except taxes on the supply of the alcoholic liquor for human consumption; [article 366 (12A)]. „Goods‟ and „Services‟ are otherwise defined in other enactments such as Central Excise Act, 1944, Sale of Goods Act, 1938, The Finance Act, 1994 (Service Tax) etc. Loss of revenue/ compensation Parliament may, by law, on the recommendation of the Goods and Services Tax Council, provide for compensation or loss of revenue on implementation of the goods and services tax for such period which may extend to five years.
- 4. Volume X Part 1 January 10, 2015 13 Business Advisor GST structure We are going to have a dual GST model. The Centre and the States both will levy GST on supply of goods and services. On supply of goods and services in the course of inter-state, only the Centre will levy and collect taxes (IGST) which will be apportioned between the Centre and the States, based on the recommendation of GST Council. The Centre will have power to make place of supply rules in this regard. On supply of goods and services in the course of or international trade or commerce, states will not have any power to levy and collect taxes. For the first two years under GST (or as GST Council would recommend), 1% additional tax apart from GST will be levied on inter-state sale of goods which will be assigned to the state of origin of supply of goods. The rules regarding the place of origin will be formed by the Parliament. The Central Government would also have power to grant exemption to any goods from this tax. The point to be noted here is that this tax is to be levied on goods only, thus the differentiation between goods and services would again assume significance. The proposed amendment in Article 271 restricts the power of the Central Government to levy any surcharge on the GST. We may therefore, be in a better situation wherein GST will be not be subjected to any surcharge (cess, we may still have). GST will subsume the following Central and State indirect taxes: Union taxes States taxes Central Excise Duty and additional excise duty CVD and SAD on import of goods Excise duty levied under Medicinal and Toilet Preparation (Excise Duties) Act, 1955 Service tax Central Sales Tax Central Surcharges and cesses relating to supply of goods and services Value Added Taxes Entertainment tax (other than tax levied by local bodies) Octroi Entry Tax Purchase Tax Luxury Tax Taxes on Lottery, betting, gambling; State Surcharges and cesses relating to supply of goods and
- 5. Volume X Part 1 January 10, 2015 14 Business Advisor services Other taxes/ cesses/ duties/ levies (not specified) Further, tax on petroleum products will be covered in GST except for crude petroleum, high speed diesel, motor spirit, natural gas and aviation turbine fuel. For these five items, GST Council will specify the date from which GST will be levied. Tobacco & tobacco products; supply of newspapers & advertisements; luxuries, betting & gambling and entertainment & amusement are covered under the GST. However, alcoholic liquor for human consumption has been kept out of GST ambit. Way forward Going by the present mood, the Government of the day feels that it may be able to introduce GST in India w.e.f. 1st April 2016, replacing a host of indirect taxes presently levied by the centre, states and local bodies. It hopes for the parliamentary nod (two-third majority) in the forthcoming Budget session in February, 2015. This is necessary as the Indian Constitution requires amendment to allow states to tax services and the centre to tax goods at the retail level and to provide legal framework for GST by providing for constitution of a GST Council and dispute settlement mechanism. One of the major obstacles, Central Sales Tax (CST), has been addressed as the centre has agreed for compensation on account of phasing out of CST. A compensation of Rs 11,000 crore has been announced to make up for 2 percent reduction in GST rate to 2%. The Central Government has agreed for a five-year compensation. Petroleum products shall be included in GST and taxed at zero rate for the first three years. States will also be compensated for entry tax which has been agreed to be included in GST. While the Government claims that there was an overwhelming support for One of the major obstacles, Central Sales Tax (CST), has been addressed, as the Centre has agreed for compensation on account of phasing out of CST.
- 6. Volume X Part 1 January 10, 2015 15 Business Advisor the proposals on the Constitutional Amendment for GST which were arrived at in consultations with the states, there are states like Tamil Nadu which are opposed to hasty introduction of Constitution Amendment Bill for GST in Parliament without evolving consensus. West Bengal also has certain reservations on GST despite the fact that Empowered Committee on GST once had a West Bengal cadre Chairperson. There are a few states which seek expeditious roll out of GST while others like Tamil Nadu still want clarity on GST rates, revenue neutral rates, CST compensation methodology etc. States like Gujarat feel that finances of net producing and manufacturing states may come under stress in initial years. The States also want compensation on account of central sales tax to be paid to them expeditiously before its roll-out from April 2016. The states may also get one year time to implement the provision of GST, once GST is introduced in 2016 as proposed. The Bill itself provides for this leverage. This is only a transitional provision and all states will sooner or later have to implement it. This would also address the inconsistency which may arise out of both tax laws (GST and VAT) being in force. And finally All said and done, introduction of GST is not going to be easy. GST design, structure, IGST, administrative arrangement with states, disputes between centre and states, multiplicity of authorities, different interpretations by various states, standardisation of systems and procedures, training, need for huge IT infrastructure etc., are some of the concerns which will pose challenge to proposed GST. Common date of introducing GST may also be an issue as few states may not cooperate, given the political compulsions. India should get a clean and simple GST with minimal distortions but consumption-based, keeping in mind business costs and objectives, economic growth and efficiency in all spheres. A broad, clear and objective consensus is required to introduce and implement GST. (Dr Sanjiv Agarwal is Partner, Agarwal Sanjiv & Company, Jaipur) India should get a clean and simple GST with minimal distortions but consumption-based, keeping in mind business costs and objectives, economic growth and efficiency in all spheres.