Union Finance Minister, Arun Jaitley, on 19^th December, 2014, introduced the Constitution (122^nd Amendment) Bill which, he said, is the “single biggest tax reform” since independence. The Goods and Services Tax (GST), which is expected to come into effect in next year, could add as much as two percent to India’s Gross Domestic Product (GDP).

Well, that sounds wonderful but what exactly would GST do?

GST would result in value addition at every stage of the supply chain, from the production level up to the retail level, but the tax to be paid would only be on the value added and not the total value. For example, if at the first stage, the tax paid on a product worth Rs 20,000 is at 10 percent, then tax payable would be Rs. 2000. If at the next level, the same product is sold at Rs 25,000, technically the tax levied would be Rs. 2500. However, thanks to GST, there is a tax set off of Rs. 2000 available, so the actual tax at that stage would amount to Rs. 500.

The idea behind GST is to impose uniform taxation throughout the economy on goods as well as services. The GST is expected to replace a number of indirect taxes that are levied by the Union and State Governments, and also to provide for a common national market for goods and services.

And who would implement GST?

So, the Bill has proposed a dual GST model. GST that would be levied by the Centre would be called Central GST (CGST) and GST charged by States would be called State GST (SGST). CGST and SGST would be applicable at rates that would be mutually agreed upon by the Centre and the States. An Integrated GST (IGST) would also be issued on inter-State transactions of goods and services.

A GST council would be created, sixty days after GST comes into effect, to examine issues related to GST and make recommendations to the Centre and States on parameters like rates, exemptions and threshold limits.

This council would comprise of a:

• Chairman (Union Finance Minister)
• A member in charge of Revenue or Finance (Union Minister of State)
• A member in charge of Finance or Taxation or any other Minister nominated by each State government.

Basically, the idea is to confer concurrent power upon the Parliament and the State legislature to make laws governing GST.

Okay, all that sounds great. But what are the indirect taxes that it will be replacing?

It will be subsuming Central indirect taxes such as:

• Central excise duty
• Additional excise duties
• Excise duty levied under the Medicinal and Toilet preparations (Excise duties) Act, 1955
• Service Tax
• Additional customs duty
• Special additional duty of customs
• Central surcharges and cesses

It will also replace indirect taxes levied by State governments, such as:

• State Value Added Tax/ Sales Tax
• Entertainment Tax (other than the tax levied by local bodies)
• Central Sales Tax (levied by the Centre and collected by the State)
• Octroi and Entry Tax
• Purchase Tax
• Luxury Tax
• Taxes on lottery, betting and gambling
• State surcharges and cesses

But would GST be applicable on all goods and services?

No. It would be covering all goods and services barring alcoholic liquor, petroleum and petroleum products (Though this situation might change based on the recommendations of the GST council).

Everything sounds great but how does it affect me?

In a report by Business Today, Manpreet Singh Badal, leader of People’s Party of Punjab said that GST will generate employment and boost growth, as a result, the common man will also gain from this. However, it’s still not clear as to whether the application of GST would be good for the final consumers in terms of issues like price rise.

If it is so important for the development of our economy, why wasn’t it done before?

The previous government had tried to implement GST but failed because a few states said that they weren’t being adequately compensated for the losses that would have arisen due to its implementation. The lack of necessary infrastructure required to get GST rolling in was also another hindrance to the implementation of GST. Whereas, the present government has promised, in the Bill presented by the Finance Minister, that it will provide compensation for the States “for loss of revenue” arising out of the application of GST for a period which may extend to five years.

In closure:

According to the International Monetary Fund (IMF), “India’s revenue-to-GDP ratio has fallen below its peers. GST would be the most important reform, and would boost growth through the creation of a single Indian market”. The Bill is still in its developing stages and there have already been a lot of questions raised and a lot still unanswered – like at what rate would the taxes be levied by the States and the Centre and how would it affect us, the consumers. Our Finance Minister is of the opinion that for our country to seek the path of progress, it must have an “environment conducive to progress” and while most of us would also want to agree with that, one can only hope that GST, which had been a jinxed concept for so long, actually comes into effect the next year.