What is the GST Bill? What does it mean to you and me?

The Good and Services tax in the biggest indirect tax reform
since 1947 and it has potential to lead the economic
integration of India.
The Good and Services Tax is the biggest indirect tax reform since
1947. This will be levied on manufacture sale and consumption of
goods and services.
In the words of the Finance Minister Arun Jaitley, the GST bill will
lead to the economic integration of India.
The main function of the GST is to transform India into a uniform
market by breaking the current fiscal barrier between states. Thus
the GST will facilitate a uniform tax levied on goods and services
across the country.
Currently, the indirect tax system in India is complicated with
overlapping taxes levied by the Centre and the State separately.

Framework of the GST will replace indirect taxes

The GST will have a 'dual' structure, which means it will have two
components- the Central GST and the State GST. They will both have
separate powers to legislate and administer their respective taxes.
Thus equally empowering both.
Taxes such as excise duty, service, central sales tax, VAT ( value
added tax), entry tax or octroi will all be subsumed by the GST
under a single umbrella.
With passing of the GST bill, we can expect a climate of improved
tax compliance.

Thus, the GST will basically have only three kinds of taxes, Central,
State and another called the integrated GST to tackle inter-state
transactions.

When is the proposed GST set to start functioning and what

are the hurdles?
The GST regime is intended to be functional from 1st April, 2016.
The first mention of the bill was in 2009 when the previous UPA
government opened a discussion on it. They were successful in
introducing the bill but failed to get it passed.
On 17th December 2014, the NDA government made slight changes
to it and redefined it in the Lok Sabha. The bill got cleared on May
6th this year. However the current challenge facing the bill is that it
needs two-third majority of both houses and 50 percent of the state
assemblies will have to ratify it. The bill is now stuck in the Rajya
Sabha, because the current government does not hold a majority
here.
The role of the opposition
The Congress demands for reforms in key areas of the GST has been
stalling the process of passing the bill.
Three main concerns of the Congress over the bill are:
-one per cent additional tax as goods move across states ;
-the constitutional cap of 18 per cent and an independent dispute
redressal mechanism;
-the party has maintained that the government was ignoring the
concerns raised by the party on the legislation;
They want the Bill to be referred to a Select Committee for review.

The impact and relevance of the GST bill

According to Finance Minister Arun Jaitlety the GST will be

instrumental in helping the GDP of India to grow by 2 percent. The
GST also offers a solution to the multinationals as it breaks down the
indirect tax structure into one single tax payable by the companies.
Although the states have feared loss of fiscal powers, the
Constitutional amendment bill has promised to solve this by giving
compensation packages for three years for any kind of revenue loss.
The bill has proposed to have GST council wherein all union and
state minister in charge of finance will be on a equal footing. It will
also have a Dispute Settlement authority to mitigate the tensions
between the centre and state smoothly.
One main contention for the state in the GST is the inclusion of
petroleum products. The current consensus on this is that the states
will continue to levy sales tax/VAT on these with the exception of
imports and inter-state trade. With the Modi government walking
that extra mile to get consensus on implementation of the GST, we
have to hold our breaths till it is functional by the proposed deadline
of April 1st 2016.

THE GOODS AND SERVICES TAX BILL OR GST BILL,

The Goods and Services Tax Bill or GST Bill, officially known
as The Constitution (One Hundred and Twenty-Second
Amendment) Bill, 2014, proposes a national Value added Tax to
be implemented in India[1] from June 2016.[2] "Goods and Services
Tax" would be a comprehensive indirect tax on manufacture, sale
and consumption of goods and services throughout India, to replace
taxes levied by the Central and State governments.

Goods and services tax would be levied and collected at each stage
of sale or purchase of goods or services based on the input tax
credit method.
The introduction of Goods and Services Tax (GST) would be a
significant step in the reform of indirect taxation in India.
Amalgamating several Central and State taxes into a single tax
would mitigate cascading or double taxation, facilitating a common
national market. The simplicity of the tax should lead to easier
administration and enforcement.From the consumer point of view,
the biggest advantage would be in terms of a reduction in the
overall tax burden on goods, which is currently estimated at 25%30%
As India is a federal republic GST would be implemented
concurrently by the central government and by state governments.

The Constitution (122nd Amendment) (GST) Bill, 2014

Highlights of the Bill

The Bill amends the Constitution to introduce the goods and

services tax (GST).

Parliament and state legislatures will have concurrent powers

to make laws on GST. Only the centre may levy an integrated
GST (IGST) on the interstate supply of goods and services, and
imports.

Alcohol for human consumption has been exempted from the

purview of GST. GST will apply to five petroleum products at
a later date.
The GST Council will recommend rates of tax, period of levy of
additional tax, principles of supply, special provisions to
certain states etc. The GST Council will consist of the Union
Finance Minister, Union Minister of State for Revenue, and
state Finance Ministers.

The Bill empowers the centre to impose an additional tax of up

to 1%, on the inter-state supply of goods for two years or
more. This tax will accrue to states from where the supply
originates.

Parliament may, by law, provide compensation to states for

any loss of revenue from the introduction of GST, up to a five
year period.

The Constitution provides for the division of taxation powers

between the centre and states. Currently, indirect taxes are imposed
on goods and services. These include excise duty, sales tax, service
tax, octroi, customs duty etc. Some of these taxes are levied by the
centre and some by the states. For taxes imposed by states, the tax
rates may vary across different states. The concept of Value Added
Tax (VAT) was introduced for central excise duty in 1986 (first as
MODVAT and then as CENVAT). Prior to this, excise duty was levied
on both inputs used and the output produced.

This meant that an amount paid as tax on the input was subject to
taxation again at the output level (with limited set offs). This was
applicable to each intermediate good in the manufacturing process.
This tax on tax led to cascading of taxes. This problem was sought
to be addressed by the VAT regime under which tax paid on the
inputs is deducted from the tax payable on the output produced.
Similarly, sales tax also had a cascading effect through the
distribution chain. All states have now adopted the concept of VAT
for state sales tax. The issue of cascading taxation was partly
addressed through the VAT regime. However, certain problems
remained. For example, several central and state taxes were
excluded from VAT. Sectors such as real estate, oil and gas
production etc. were exempt from VAT. Further, goods and services
were taxed differently, thereby making the taxation of products
complex.
Some of these challenges are sought to be overcome with the
introduction of the Goods and Services Tax (GST).
The GST regime intends to subsume most indirect taxes under a
single taxation regime. GST is a value added tax levied across goods
and services. This is expected to help broaden the tax base,
increase tax compliance, and reduce economic distortions caused
by inter-state variations in taxes.3 In 2011, the Constitution (115th
Amendment) Bill, 2011 was introduced in Parliament to enable the
levy of GST. However, the Bill lapsed with the dissolution of the 15th

Lok Sabha. Subsequently, in December 2014, the Constitution

(122nd Amendment) Bill, 2014 was introduced in Lok Sabha. The Bill
was passed by Lok Sabha in May 2015 and referred to a Select
Committee of Rajya Sabha for examination.

Key Issues and Analysis

An ideal GST regime intends to create a harmonised system of
taxation by subsuming all indirect taxes under one tax. It
seeks to address challenges with the current indirect tax
regime by broadening the tax base, eliminating cascading of
taxes, increasing compliance, and reducing economic
distortions caused by inter-state variations in taxes.

The provisions of this Bill do not fully conform to an ideal GST

regime. Deferring the levy of GST on five petroleum products
could lead to cascading of taxes.

The additional 1% tax levied on goods that are transported

across states dilutes the objective of creating a harmonised
national market for goods and services. Inter-state trade of a
good would be more expensive than intra-state trade, with the
burden being borne by retail consumers. Further, cascading of
taxes will continue.

The Bill permits the centre to levy and collect GST in the course of
inter-state trade and commerce. Instead, some experts have
recommended a modified bank model for inter-state transactions to
ease tax compliance and administrative burden.