Goods and Services Tax (GST) Bill By Gunjan Bhagchandani

In a significant development, the Rajya Sabha passed the Constitution (122nd Amendment) (GST) Bill, 2014 unanimously. It is being reported that the Bill got 203 Ayes against NIL Notes. The Lok Sabha had already passed the Bill in May 2015.

GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition. This makes the GST essentially a tax only on value addition at each stage.

The final consumer will thus bear only the Goods and Services Tax (GST) charged by the last dealer in the supply chain, with set-off benefits at all the previous stages. Moving the Bill in Rajya Sabha, Finance Minister Arun Jaitley said: “the whole concept of the GST Council is, Indian federalism at play in the best possible mode”. Two-thirds of the voting power, in the GST Council, would belong to the States, and one-third of the voting power, in the GST Council, would belong to the Centre. The votes required to settle particular issues are three-fourths and therefore, necessarily, the GST Council has to work, particularly, under a consensus and, therefore, the Centre and the States will have to work together.

The Centre will have a veto on the States; the States will have a veto on the Centre. Therefore, this would be federalism at play, under which the GST Council itself, would then be able to take its decisions.

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The whole object is that “after this Constitution Amendment is approved and ratified by the States, the Council would come into existence.” The Finance Minister added that this is one of the most significant tax reforms in India in recent history. This reform has been debated within the political and economic system of India for the last almost over 15 years. On behalf of the opposition, Former Finance Minister P. Chidambaram said:

“I want an assurance from the Finance Minister. This is far too important legislation which will last for the next 100 years. Not to hide behind any technical arguments, I want an assurance from the Leader of the House, the honorable Finance Minister, that when that Bill is brought, it will be brought as a Financial Bill and not as a Money Bill.Therefore, both the Houses will debate on the Bill. Too many Bills in the past have swept through the cracks as Money Bill. Both the Houses must be allowed to vote and this is something within the power of the Government to say, ‘yes, we will introduce the CGST Bill and the IGST Bill as Financial Bills and both the Houses will debate, both the Houses will vote’, and I ask the Finance Minister that assurance, and, I say, after the debate, my Party will support this Bill, but we require assurances from the Finance Minister.”

The opposition has also demanded that the standard rate of GST which applies to most of the goods and services, over 70 per cent of goods and services, should not exceed 18 per cent and the lower rate and the demerit rate can be worked on that 18 percent.

The Constitution Amendment Bill for Goods and Services Tax (GST) has been affirmed by The President of India post its section in the Parliament (Rajya Sabha on 3 August 2016 and Lok Sabha on 8 August 2016) and confirmation by more than 50 percent of state governing bodies. The Government of India is resolved to supplant all the circuitous charges exacted on merchandise and enterprises by the Center and States and actualize GST by April 2017. With Goods and Services Tax (GST), it is expected that the duty base will be far reaching, as for all intents and purposes all merchandise and ventures will be assessable, with least exclusions.

The Act was passed in accordance with the provisions of Article 368 of the Constitution and has been ratified by more than half of the State Legislatures, as required under Clause (2) of the said article. On 12 August 2016, Assam became the first state to ratify the bill, when the Assam Legislative Assembly unanimously approved it.

The Goods and Services Tax (GST) will be a diversion changing course for the Indian economy by making a typical Indian market and diminishing the falling impact of assessment on the cost of merchandise and enterprises. It will affect the duty structure, impose frequency, assess calculation, charge installment, consistence, credit usage and reporting, prompting to an entire upgrade of the current aberrant expense framework. Goods and Services Tax will have an expansive effect on every one of the parts of the business operations in the nation, for example, evaluating of items and administrations, store network improvement, IT, bookkeeping, and expense consistence frameworks.

The Goods and Services Tax (GST), the biggest reform in India’s indirect tax structure since the economy began to be opened up 25 years ago, at last looks, set to become reality.

Imagine a producer of garments. He buys raw material or inputs — cloth, thread, buttons, tailoring equipment — worth Rs 100, a sum that includes a tax of Rs 10. With these raw materials, he manufactures a shirt. In the process of creating the shirt, the manufacturer adds value to the materials he started out with. Let us take this value added by him to be Rs 30. The gross value of his good would, then, be Rs 100 + 30, or Rs 130.At a tax rate of 10%, the tax on output (this shirt) will then be Rs 13. But under Goods and Services Tax (GST), he can set off this tax (Rs 13) against the tax he has already paid on raw material/inputs (Rs 10). Therefore, the effective GST incidence on the manufacturer is only Rs 3 (13 – 10).

The next stage is that of the good passing from the manufacturer to the wholesaler. The wholesaler purchases it for Rs 130, and adds on value (which is basically his ‘margin’) of, say, Rs 20. The gross value of the good he sells would then be Rs 130 + 20 — or a total of Rs 150. A 10% tax on this amount will be Rs 15. But again, under GST, he can set off the tax on his output (Rs 15) against the tax on his purchased good from the manufacturer (Rs 13). Thus, the effective GST incidence on the wholesaler is only Rs 2 (15 – 13).

In the final stage, a retailer buys the shirt from the wholesaler. To his purchase price of Rs 150, he adds value, or margin, of, say, Rs 10. The gross value of what he sells, therefore, goes up to Rs 150 + 10, or Rs 160. The tax on this, at 10%, will be Rs 16. But by setting off this tax (Rs 16) against the tax on his purchase from the wholesaler (Rs 15), the retailer brings down the effective GST incidence on himself to Re 1(16–15).
Thus, the total GST on the entire value chain from the raw material/input suppliers (who can claim no tax credit since they haven’t purchased anything themselves) through the manufacturer, wholesaler and retailer are, Rs 10 + 3 +2 + 1, or Rs 16.

 

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