On the way to GST Goods and Services Tax (GST) remains the most awaited tax reform of the nation. Though, the first discussion paper on GST was issued in 2009, this reform is yet to materialise.

However, there have been recent positive developments on the proposed GST reform, which gives us reason to believe that it could become a reality from 1 April 2016. Since November 2014, the trending discussion on GST is mostly about the Constitutional Amendment Bill.

Today, on 19 December 2014, the 122nd Constitutional Amendment Bill was introduced in Parliament. This update discusses the key facets of the Bill.

The Constitutional Amendment Bill (CAB)

It is pertinent to note that, at present, the Constitution of India does not provide for a concurrent levy of indirect taxes, thus, to provide the same, amendment to the Constitution of India is proposed vide CAB. This can be perceived as a major first step for the introduction of GST in India.

Levy of GST

The CAB will enable the Centre and State Government (including Union Territories) to introduce law for levying GST on supply of all goods or services or both. Thus, unless kept outside the purview of GST, all supply of goods or services or both will attract CGST (to be levied by Centre) and SGST (to be levied by State).

GST Council

CAB provides for constituting a ‘GST Council’ which will consist of the Union Finance Minister, Union Minister of State (Revenue/Finance) and Minister in charge of Finance or taxation (or any other minister nominated by a State Government). The GST Council will make recommendations to the Centre and States’ various key aspects of GST as under:

• Taxes, cesses, surcharges to be subsumed in GST

• Model GST law

• Goods and services subject to or exempted from GST

• Rate of GST including floor rates

• Threshold limit of GST

Petroleum products and alcohol

From CAB, it appears that initially petroleum products may not attract GST, however, at a later stage the GST Council may decide the date from which GST will be levied on petroleum products.

As regards alcohol for human consumption, the CAB provides that it will remain outside the purview of GST.

Inter-State Supply GST

An inter-State supply of goods and services will attract IGST. Further, for a period of two years (which could be extended further), Centre will levy an additional tax upto 1% on inter-State supply of goods.

Compensation to States

To alienate the concerns of State regarding revenue loss on account of introduction of GST, the CAB specifically provides for compensation for a period of time, which may extend upto 5 years.

Rate of GST

Though the CAB provides that the GST Council will determine the GST rates including floor rates, it is silent on the rate of GST.

According to news sources, a sub-committee on GST has proposed a Revenue Neutral Rate (RNR) of 13.91% for Central GST and 12.77 % for the State GST. Thus, cumulatively the rate of proposed GST could be 27%.

It is important to note that this rate (of 27%) is much higher than the rate of 12% which was proposed by the Task Force on GST during the Thirteenth Finance Commission. The rate of 20% for goods and 16% for services was proposed on 21 July 2010 by the former Union Finance Minister. Though, the final decision on GST rate is yet to be taken, we hope that it will be considerably lower than 27% as globally its been observed that higher the rate of GST lower is it’s compliance.

Way forward

In July 2014, during the Union Budget speech, the Finance Minister had assured the House that debate on GST should come to an end. He also said that before the year’s end the Government would endeavour to approve this legislative scheme. In line with the aforementioned assurance, the Central Government has introduced the CAB in Parliament. This step has assured the industry that the Centre is determined to bring GST. The CAB needs to be approved by two-thirds majority in the Lok Sabha and Rajya Sabha. Also, more than 50% of the States should approve the CAB. Once the CAB passes through the aforesaid rigours, it will pave the way for the Centre and State Governments to frame the GST laws. 

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