The Goods and Services Tax (GST) has been one of the most discussed subjects in India since independence. Perhaps, no other Bill has been as debated as this is. Empowered Committee of State Finance Ministers has been deliberating on GST for more than last ten years. The Empowered Committee (EC) comprises Finance Ministers of all the States, Commissioners of Commercial Taxes and Secretaries of the State Finance Departments. Besides, senior officers of the Central Government also attend the committee meetings. After much deliberation, Constitution Amendment (one hundred fifteenth) Bill for GST was introduced in loksabha in the budget session in 2011. The Bill was referred to Parliamentary Standing Committee on Finance. The Standing Committee examined the Bill. State Finance Ministers presented their views. The Committee also heard tax experts, economists and stakeholders and submitted their report. The Bill was revised on the basis of the Standing Committee’s report and the views of the States. The revised Constitution Amendment (one hundred and twenty second) Bill for GST was introduced in the lok Sabha in December 2014.
In the last Budget Session, the GST Bill has been passed in the lok Sabha. Congress staged a walkout and AIDMK voted against, but the NDA has a majority in the lok Sabha. In the Rajya Sabha, the NDA does not have the required number. As such, the Bill had to be referred to the Select Committee of the upper house.
GST is the most important and perhaps, the biggest reform in the field of indirect taxes. It will replace a plethora of taxes like excise duty, service tax, counter veiling duties, etc presently levied by the Central Government and State taxes like CST, VAT, Entry Tax, luxury tax etc. Now a manufacturer has to register under different Acts like Central Excise Duty, Service Tax, Central Sales Tax, VAT, Entry Tax, etc and has to also file return under different Acts. But under GST he has to register only under one Act and file one return. With IT back up, the administration will be simple, hassle free and transparent.
One of the major pitfalls of the present taxation system is cascading. A manufacturer pays excise duty on goods and that gets embedded in the sale price since excise duty paid is not given as input tax credit when the goods are traded. If the goods are sold to other State, CST is collected and CST is collected on the amount of excise duty embedded in the sale price. When the goods are further sold in the State, VAT is collected and VAT is collected on the sale price with load of excise duty and CST. This causes cascading and increases cost of production. Since all these taxes are subsumed in GST and there is mechanism of input tax credit, there will be no cascading, which will reduce cost of production.
VAT replaced sales tax in the States in 2005. In the Chief Ministers’ conference held on November 16, 1999, it was decided among other things to bring in uniformity in tax rates among the States and introduce VAT in place of Sales Tax. In pursuance to the decision of the conference, an Empowered Committee (EC) was constituted to coordinate among the States and take decision for smooth transition from Sales Tax to VAT and bring in uniform tax rates. In the sales tax regime, tax rate differed from State to State. Dissimilar rate structure not only caused flight of business but also created a kind of ‘tax war’. For example, in Odisha the rate of tax on car was 12 per cent, but in the neighbouring State, it was 4 per cent. So, a customer would go to the neighbouring State to buy his car and in that way, Odisha lost the tax to the neighbouring State as tax was collected where the sale took place. It induced the State to reduce the tax rate if the rate was lower in the neighbouring State to protect its revenue.
The EC decided tax rates of the goods to be uniform across the States and it was also decided that the rates decided would be treated as floor rates, i.e. a State could not lower the rate of a commodity below the decided rate. But it is seen many States did not conform to the decisions of the EC. For example, in Odisha dal and pulses are taxable at 5 per cent whereas these are exempt in West Bengal, Chhatisgarh and Jharkhand. As a result, the traders dealing in dal and pulses demand exemption. Two months back, the traders had also stopped importing dal and pulses from other States in protest against the disparity in tax rates for which they are losing business to other States. The EC decided rate on dal and pulses is 5 per cent. The other States have deviated from the decision. Though EC comprises the State Finance Ministers, if one State violates the decision of the EC, it has no power to enforce its decision on the State.
Constitution Amendment Bill has a provision for creation of a GST Council. The President will constitute GST Council within 60 days after the Bill is passed. Finance Ministers or Ministers nominated by the States shall be members of the Council. The Union Finance Minister will be the Chairperson of the Council and the State Ministers will nominate the Vice Chairperson. The Council shall decide the taxes and cesses to be subsumed in GST, threshold limit, goods and services to be exempted, the rates, model GST law, etc. The GST Council shall also decide about the modalities to resolve the dispute arising out of its recommendations. Unlike Empowered Committee, the GST Council is a constitutional creation and has constitutional mandate to resolve the matter if a State violates its decision.
Economists and tax experts are of the view that GST will bring in transparency in administration, increase export, encourage investment and help in growth of industry and economy and with IT back up the administration will be simple. Nobody including those who oppose the Bill in the Parliament contradicts it. In 2006-07, then Union Finance Minister Chidambaram announced in his budget speech that GST would be introduced in 2010. Since CST is not VAT/GST compatible, it was decided to gradually phase out CST. Accordingly, CST was reduced from 4 per cent to 3 per cent in 2007 and from 3 per cent to 2 per cent in 2008. As it was planned, CST would be zero by 2010 and GST would be introduced. But it missed the deadlines. CST was not further reduced from 2008. GST Bill was introduced in 2011, but so far, after its reintroduction, the Bill could not be passed. If the Bill could be passed in the coming Monsoon Session of the Parliament, the GST can be introduced from April 2016 or latest by April 2017. If the Government fails to pass the Bill in the next session, the possibility for its introduction even in 2018 is bleak, as this is the year before the election. 2020 will be too late. GST Bill should be passed in the coming Monsoon Session for the good of both the States and the nation as a whole.