All you need to know about the GST

First, a BJP-led government proposed it, then opposed it and now another BJP government is all set to take credit for the most comprehensive tax reform we’ve known

WrittenBy:Kshitij Malhotra
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The goods and services tax bill, officially known as The Constitution (122nd Amendment) (GST) Bill,has been on the legislative backburner for the longest time. The current monsoon session of the parliament, however, could see the bill finally clear the Rajya Sabha (RS) floor, where it is currently stuck. Since the bill requires a constitutional amendment, the government needs a two-third majority in the Upper House and as things stand now, it can bank on the support of more than half the RS members.

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What does the Goods and Services Tax mean?

The central and state governments levy a host of indirect taxes. Unlike direct taxes (such as income tax, which an individual pays directly to the government based on his/her income), indirect taxesare levied on the manufacture, sale and consumption of goods and services. Examples of indirect taxes include excise duty, sales tax, value added tax (VAT), among others. However, the current indirect tax regime is complex and multi-layered. The GST is proposed as a way to simplify the taxation system by incorporating a number of indirect taxes that are currently levied.

Central indirect taxes like excise duty and service tax and state indirect taxes like VAT, entertainment tax and octroi tax will all be subsumed by GST. However, some taxes will remain outside the ambit of GST, like taxes on petroleum, alcohol and tobacco products, in addition to road tax, property tax and stamp duty.

When implemented, GST will have two components: central GST (CGST) and state GST (SGST), both of which would be levied on goods or services supplied in a state. The CGST component will go into the centre’s pocket, while the SGST would go to the state.

A contentious issue related to GST has been fixing the revenue neutral rate (RNR). Since a lot of taxes will be incorporated into GST (each having its own rate), there is a need to arrive at a GST rate which will yield the same revenue as before. This rate is called the RNR and it has been proposed to be in the range of 15-15.5 per cent by a committee led by Chief Economic Advisor Arvind Subramanian. Based on this, the standard GST rate between 17-18 per cent has been recommended. The final decision on the rate of GST, however, will be made by a panel of state finance ministers soon.

History of GST in India

Although the original idea of GST was floated during AtalBihari Vajpayee’s government, in 2006 Finance Minister P. Chidambaram announced in his budget speech that “there is a large consensus that the country should move towards a national level Goods and Services Tax (GST)”. Chidambaram proposed to get GST implemented by April 1, 2010, but faced opposition, particularly from BharatiyaJanata Party (BJP) ruled states.In 2013, then Rural Development Minister JairamNaresh even accused current Prime Minister NarendraModi (who has chief minister of Gujarat at the time) of being a staunch detractor, saying that he had “singlehandedly derailed the entire introduction of GST”.

Since the BJP regained power in 2014, the tables have turned. Whereas it was the BJP which opposed GST earlier, the Congress blocked the bill in the RS after it was passed in the LokSabha (LS) in May, 2015. While the Congress claims to oppose the bill due to the RNR not being capped, it isn’t hard to imagine the obstruction being politically motivated.

Long road ahead

Unfortunately for the centre, the fight to implement GST doesn’t end even if the bill somehow manages to pass the RS. If it does (and that’s a big if), the bill will then have to be ratified by the legislatures of at least 15 states (more than half of the total 29), following which it will reach the President for approval. After the President enacts the bill, a GST Council will be constituted (with representatives from the state and centre) which will lay out a detailed plan for implementation of GST.

Overall, it could be well over a year before GST becomes a reality even if the bill passes this session. However, it could be a crowning moment for the Modi government, which will happily take credit for executing the most comprehensive tax reform in independent India’s history.

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