Goods and Services Bill

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• This post is recommended for aspirants with some experience in preparation and good basic knowledge of Economy. 
• Other should first understand basics (Mrunal.org videos will be sufficient) and only then read this.
• I have not updated it with recent developments as the discussion (chaos) in Parliament is still going on.

States reject Centre’s GST Bill

• States opposed the Centre’s draft Bill and its proposal to extend the GST to petroleum goods and entry tax.
• Consensus eludes Centre and States on the three main issues of compensation, petrol tax and entry tax

• The GST will subsume all excise and service taxes.
• States want compensation from the Centre for the revenues they will lose over five years from the shift to the GST regime.
• States also want a clause on the compensation to be inserted into the GST Constitution Amendment Bill

The Constitution 115th Amendment Bill, 2011 (GST)

Highlights of the Bill

• The Bill seeks to amend the Constitution to provide for the introduction of  a Goods and Services Tax (GST).
• The Bill allows both Parliament and state legislatures to frame laws with respect to GST.
• Parliament will have the exclusive power to levy GST on  imports and inter-state trade.
• The distribution of these taxes  between the centre and the states shall be determined by Parliament.
• The Bill creates a GST Council consisting of

1. state  Finance Ministers,
2. the Union Finance Minister, and
3. Union Minister of  State for Revenue to make recommendations with respect to GST.

• The Bill provides for a Dispute Settlement Authority to settle disputes 

1. between states or
2. between states and the Union with regard to GST. 

• Appeals from the Authority lie with the Supreme Court. 
• The following goods are exempted from the purview of GST:

• petroleum crude,

• high speed diesel,

• petrol, 

• natural gas,

• aviation turbine fuel, and

• alcohol for human consumption.

States shall have the power to levy  taxes on these items, except in the case of imports and inter-state trade.

Other taxes under GST

• Unlike these goods, tobacco and tobacco products are not exempted from GST. However, the central government may still impose excise duty on them.
• State legislatures will have the power to levy certain taxes to the extent collected by Panchayats or Municipalities.  These include octroi, entertainment tax, and amusement tax.
• Stamp duties mentioned in the Union List shall be levied by the centre and collected by the states.
• Goods and services are taxed by both the centre and the states.
• These taxes include

• excise tax,

• sales tax,

• customs duty, 

• service tax, and

• octroi.

What is the need for GST

• As per the Constitution, some of these taxes are levied by both the centre and the states, whereas  others are levied by only one of the two.
• For taxes imposed by states, rates may vary across different states. Over the years, there have been attempts to harmonise the existing system of taxation.
• The Value Added Tax (VAT) for excise was introduced by the centre in 1986 (first as MODVAT and then as CENVAT),  and later by states. All states have now adopted VAT to replace state sales tax.
• Prior to the introduction of VAT,  producers faced a burden of ‘multiple taxation’ (tax on both inputs used and the output produced).

If GST is implemented, tax evasion will be low and tax burden on corporates and business will decrease. Total taxes will be collected at the consumer end. 

• Under VAT, this  problem was sought to be addressed as the tax paid on the inputs is deducted from the tax of the output produced.
• The discussion paper released by an Empowered Committee of State Finance Ministers notes that though VAT has been a  success, certain shortcomings remain.
• Among these is the exclusion of several central taxes, customs duties, state taxes  such as luxury tax, entertainment tax, and service taxes from VAT.
• These problems are sought to be addressed through  the introduction of a Goods and Services Tax (GST). This tax would replace VAT and other indirect taxes presently levied and subsume them under a harmonised system.
• According to a Working Paper by the Ministry of Finance, GST  will result in

1. greater administrative efficiency,
2. simplified and increased compliance and enforcement,
3. reduction in  economic distortions due to inter-state differences, and
4. ease of information sharing across states.

GST Council

• A GST Council will be established within 60 days of enactment of the Bill. The GST Council shall make  recommendations to the centre and states on:

1. taxes which may be subsumed,
2. goods and services which may  be exempted,
3. a threshold limit of turnover for application of GST,
4. rates of GST, and
5. other related matters.

• The Bill states that while making its recommendations, the GST Council will be guided by the need for a harmonised  structure of GST and a harmonised national market for goods and services.

The GST Council will consist of:

1. the Union Finance Minister,
2. Union Minister of State in charge of Revenue,  and
3. Minister in charge of finance or taxation (or any other nominated minister) of each state.

All decisions of the GST Council at a meeting shall be made with consensus of all the members present.

Goods and Services Tax Dispute Settlement Authority

• The Bill empowers Parliament to establish a GST Dispute Settlement Authority.
• The Authority will adjudicate  disputes referred to it by a state or the central government.
• The dispute must be related to a deviation from the  recommendations of the GST Council that

• results in a loss of revenue to a state or the centre, or

• affects the  harmonised structure of GST.

• The Authority will consist of a Chairperson (a former Supreme Court judge or High  Court Chief Justice) and two other members.
• Appeals against orders of the Authority shall lie with the Supreme Court.

Key Issues and Analysis

• The GST Council will recommend harmonised tax rates, and disputes  regarding these rates will be adjudicated by the Dispute Settlement Authority (with appeal to the Supreme Court). This structure, in which executive and judicial bodies determine tax rates, may impinge on the  rights of legislatures
• The Bill seeks to amend the Constitution to provide that Parliament and state legislatures may both frame laws with regard to GST without  providing for Parliamentary supremacy.
• The GST Council shall make all decisions by “consensus”. It is unclear whether this may be interpreted as majority or unanimity.
• The exclusion of certain commodities from GST is contrary to the recommendations of the Thirteenth Finance Commission and Department  of Revenue.
• The Bill constitutionally requires a “Union Finance Minister” and “Union  Minister of State in charge of Revenue”. This could undermine the  flexibility of the Prime Minister informing a Council of Ministers.

GST Bill: States to get relief

• 122nd Constitutional Amendment Bill on the Goods and Services Tax.
• The GST will subsume into one levy all indirect taxes imposed by the Centre and the States.
• These include entry tax. The Minister also proposes to extend the GST to all petroleum products and real estate transactions.
• Previously, Empowered Committee of State Finance Ministers had by consensus rejected the Centre’s draft Constitutional Amendment Bill and its proposal to bring petroleum goods and entry tax within the GST ambit.
• The States have consistently demanded that the GST regime exclude real estate transactions and stamp duties.
• The Ministry has, however, inserted into its draft Bill a provision guaranteeing compensation to States for losses of revenues owing to the transition to the GST
• Constitution itself will provide that the Centre transfer funds to States to make good their losses of revenue owing to the shift to the GST over the first five years of the transition.

These are Major developments till now (Aug 2015). GST bill is still hanging in Parliament. So I will edit the post completely after the air settles down.

GST may not result in significant growth push says Goldman Sachs

• According to Goldman Sachs, Modi Government’s model for the Goods & Services Tax (GST) will not raise growth, will push up consumer prices inflation and may not result in increased tax revenue collections.
• Proposed GST excluding key taxes such as on petroleum, alcohol, electricity and real estate as well as a proposed additional up to 1 per cent tax on inter-state movement of goods are among the flaws in the model . 
• Goldman Sachs also estimated, based on cross-country evidence and the evidence from state VAT implementation, that retail inflation could rise.

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