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The article highlights the major points of the GST bill to be tabled in Rajya Sabha today.
- How it would be in a non-GST regime?
- In a full non-GST system, there is a cascading burden of “tax on tax”, as there are no set-offs for taxes paid on inputs or on previous purchases.
What’s it like in today’s mixed scenario?
- Currently, we have Value-Added Tax (VAT) systems both at the central and state levels. But the central VAT or CENVAT mechanism extends tax set-offs only against central excise duty and service tax paid up to the level of production.
- CENVAT does not extend to value addition by the distributive trade below the stage of manufacturing; even manufacturers cannot claim set-off against other central taxes such as additional excise duty and surcharge.
- Likewise, state VATs cover only sales. Sellers can claim credit only against VAT paid on previous purchases. The VAT also does not subsume a host of other taxes imposed within the states such as luxury and entertainment tax, octroi, etc.
- Once GST comes into effect, all central- and state-level taxes and levies on all goods and services will be subsumed within an integrated tax having two components: a central GST and a state GST.
- This will ensure a complete, comprehensive and continuous mechanism of tax credits.
- Under it, there will be tax only on value addition at each stage, with the producer/seller at every stage able to set off his taxes against the central/state GST paid on his purchases.
- The end-consumer will bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
What will the Bill in Parliament today do?
- It basically seeks to amends the Constitution to empower both the Centre and the states to levy GST.
- This they cannot do now, because the Centre cannot impose any tax on goods beyond manufacturing (Excise) or primary import (Customs) stage, while states do not have the power to tax services.
- The proposed GST would subsume various central (Excise Duty, Additional Excise Duty, service tax, Countervailing or Additional Customs Duty, Special Additional Duty of Customs, etc.), as well as state-level indirect taxes (VAT/sales tax, purchase tax, entertainment tax, luxury tax, octroi, entry tax, etc).
- Once the Bill is passed, there will only be a national-level central GST and a state-level GST spanning the entire value chain for all goods and services, with some exemptions.
- Central taxes that The GST will replace
- Central Excise Duty
- Duties of Excise (medicinal and toilet preparations)
- Additional Duties of Excise (goods of special importance)
- Additional Duties of Excise (textiles and textile products)
- Additional Duties of Customs (commonly known as CVD)
- Special Additional Duty of Customs (SAD)
- Service Tax
- Cesses and surcharges in so far as they relate to supply of goods or services
- State taxes that The GST will Subsume
- State VAT
- Central Sales Tax
- Purchase Tax
- Luxury Tax
- Entry Tax (all forms)
- Entertainment Tax (not levied by local bodies)
- Taxes on advertisements
- Taxes on lotteries, betting and gambling
- State cesses and surcharges
After passage of the bill, the President shall constitute the GST Council. The GST Council shall make recommendations on:
- Taxes to be subsumed
- Model GST laws, Principles of Levy, etc.
- Threshold for exemption
- Rates, including floor and bands
- Special rate/rates for specified period
- Date from which GST to be levied on crude, high speed diesel, natural gas, aviation turbine fuel and petrol
- Special provisions for the Northeast, J&K, etc.
- Parliament will have to pass legislation on central GST (CGST) and Integrated GST (IGST). All 29 states and 9 UTs will have to pass their state GST (SGST) Acts. Dates of implementation of CGST, SGST and IGST have to be negotiated and synchronised.
- BIGGEST BENEFIT is that it will disincentivise tax evasion. If you don’t pay tax on what you sell, you don’t get credit for taxes on your inputs. Also, you will buy only from those who have already paid taxes on what they are supplying. Result: a lot of currently underground transactions will come overground.
- LOWER TAX RATES will follow from GST covering all goods and services, with tax only on value addition and set-offs against taxes on inputs/previous purchases.
The GST is being seen as the one stop solution for all the tax structure relating problems in Indian economy. In the light of this statement, comment on the current tax structure and how GST will solve these problems.
- Problems with the current tax regime.
- How GST will integrate taxes and reduce the tax burden along with other benefits.
- GST is not the panacea for all the problems.