GST may become a reality soon making India a single market
The Bharatiya Janata Party’s ‘Achche Din’ have started rolling. After registering its biggest win in the Uttar Pradesh Assembly elections, the BJP is on the road to rolling out the country’s biggest tax reform– creating, for the first time, a single Indian market.
The new tax regime– Goods and Services Tax (GST)– will harmonise 11 state and central levies into a single national sales tax. It will, thus, absorb excise duty, central sales tax, value-added tax, entry tax, luxury tax, service tax, octroi and other taxes.
The main hurdles in implementing the tax reform have finally been cleared with the GST Council approving the remaining two of the five draft laws– the State GST (SGST) and the Union Territory GST (UTGST). The other three draft legislation–the Central GST (CGST), the Integrated GST (IGST), and the compensation law– were cleared earlier.
The SGST will be taken up by respective State cabinets and then approved by the States Assemblies. The other four draft laws will have to be passed by Parliament after a nod from the Union Cabinet. The GST will have a four slab tax structure– 5, 12, 18 and 28 per cent– along with a cess on luxury and ‘sin’ goods to compensate States for any revenue loss.
The cess on luxury goods, such as cars, colas and mineral water, will be capped at 15 per cent. That means the total tax incidence on such goods cannot be more than 43 per cent– tax rate of 28 per cent plus cess of 15 per cent. The cess on pan masala has been capped at 135 per cent; while for cigarettes, the cap is at 290 per cent ad valorem or Rs 4,170 for thousand sticks or a combination of both. Cess on beedis has not been decided as some States did not want any such cess. On coal, the cess will be at Rs 400 per tonne.
The GST rate on hotels will be at 18 per cent. However, small hotels with a turnover of up to Rs 50 lakh will be taxed at 5 per cent. Under the GST, the States and the Centre will collect identical rates of taxes on goods and services. For instance, if 12 per cent is the GST rate on a good, the States and the Centre will get 6 per cent each called the CGST and SGST rates. The Centre will also levy and collect the IGST on all inter-State supply of goods and services.
Though the final peak rate will be at 28 per cent, there is an enabling clause in the model GST law that allows the rate to be raised to 40 per cent without going to Parliament and State Assemblies for approval. In addition to the four rates, there is a ‘zero tax rate’ on essential commodities, including food grains, which constitute almost half of the consumer price index basket of 300 goods.
Besides GST, the States will continue to have the power to levy sales tax/VAT on petrol, diesel, aviation fuel, real estate, electricity and potable alcohol. The Centre can also continue to levy excise duty on all these products.
The Council has already approved rules and regulations on registration, payment, refund, invoice and returns. It is expected to clear rules and regulations dealing with composition and valuation at its March 31 meeting.
That the government is serious and optimistic about rolling out the GST on July 1 can be made out from the statement of Finance Minister Arun Jaitley. He said the government intended to immediately after March 31 take up the exercise of fitment of slabs, of assigning tax slabs to various commodities. After that theGST Bill will be brought before Parliament for approval in the current session.
In earlier occasions, the Bill has been jettisoned in view of the billigerent attitude of the Opposition, especially the Congress and its leader Rahul Gandhi, after the grand old party’s worst showing in the 2014 Lok Sabha elections. That similar thing does not play out in the Rajya Sabha again, after the Congress’ drubbing in the recent Assembly elections, the government would most likely bring in the legislation as a Money Bill since such a Bill cannot be blocked in the Upper House where the ruling dispensation does not have the numbers.
After the clearance by Parliament, what will be needed for effective implementation of the GST is a robust IT backbone connecting all State governments, trade and industry, banks and other stakeholders on a real-time basis. Fitment of slabs is not so easy. The commodities have to be regularly monitored to check inflationary pressures.
Tax administration staff — both at the central and state levels– would require to be trained properly in terms of concept, legislation and procedure. They would also need to change their mindset, approach and attitude towards the tax payers.
It’s a Herculean task. But going by the events of the recent past, the government seems all set to fulfill it. To bring the country under one tax regime, to take India forward to a regime that will attract more foreign investment and raise the GDP further by 2 per cent, is the dream of the Prime Minister.
Author is a Journalist of long standing and commentator on issues of Administration and Social Issues. [IFS]
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