Goods and services tax (GST)
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Contents |
Introduction
The constitutional amendment bill for rolling out the long-pending goods and services tax cleared the first hurdle with the legislation receiving LS approval.
What is GST?
It is a tax levied when a consumer buys goods or services. This is how what consumption is taxed in most developed countries.
What is article 246A and how will the power transfer to states take place?
The bill introduces a new article that says Parliament, and, subject to some conditions, the legislature of every state will have power to make laws with respect to goods and services tax imposed by the Union or the state.
Who will administer the levy?
The bill provides for a GST Council, a joint body of the states and the Centre.
There are fears that states may lose some revenue because of the introduction of GST. The bill allows for compensation for revenue loss to states for a period of 5 years.
GST will be levied on buyers of goods and services, or where the service is consumed. This means big consumer states such as Uttar Pradesh, West Bengal and Kerala will get a high share of the taxes. To compensate for this, manufacturing states such as Tamil Nadu, Maharashtra and Gujarat fear that they will lose out on revenues. The bill provides for 1 percentage point extra tax on goods for at least two years. This extra revenue will go to the state from which the goods originated, or where it was manufactured.
Analysis and definitions: In the view of economists
The Times of India, Dec 05 2015
GST a win-win for all in long run: Economists
What is the goods and services tax (GST)?
The proposed levy will be a single tax that will cover all indirect taxes at the Centre and state level, including entry tax. It is a value-added tax, which means a levy at each stage of production, sale or consumption will be set off against taxes paid in the previous stage.
Through a system of tax credits, those who are in the intermediate stages of a chain of production will get credits or refunds for whatever levies they have paid.This avoids cascading of taxes for the end-consumer. Unlike the existing VAT, which is levied only on manufactured goods, GST will also include services. Most economists agree that a GST is a win-win situation with the consumer, industry , government and economy all gaining in the long run.
When was GST conceived and when will it be implemented?
Although the plan has been discussed for years, a formal announcement was made in the 2006 Budget by P Chidambaram, the then finance minister. Since then, it has missed several deadlines. The last target date set for a nationwide roll-out of GST was April 2016, but even that is now extremely unlikely .
Why was it held up?
When the system was first discussed, there was great enthusiasm. But, gradually sta tes started raising objections.One reason is that finance ministers would lose control over the taxation system and be unable to give discretionary concessions. The other area of concern is potential loss of revenue from cash cows such as petroleum, which makes up for almost half the revenue for some states. There was also an element of bargaining in the states' objections.
What's the current status?
The Lok Sabha has approved a Bill to amend the Constitu tion so that the Centre can levy the tax. It has to be approved by the Rajya Sabha and then by state legislatures.
The NDA 's lack of maS jority in the Upper ho use means that it has to get the opposition on board.The Centre has assured states that it will compensate them for revenue loss due to GST roll-out, besides providing flexibility on entry tax and taxing oil products. Once Parliament passes the constitution amendment Bill, at least half the state legislatures will also have to do so for the Constitution to be amended. After this process is over, several other gaps need to be filled, including the rate of tax. A panel headed by chief economic adviser Arvind Subramanian has recommended standard GST rates of 17-18% and a revenue neutral rate in the 15-15.5% range.
What are the sticking points now?
The Congress says it sup ports the idea of a GST but wants several changes to the Constitution Amendment Bill introduced by the Modi government. In particular, it is focusing on three issues. The first is a demand to specify the GST rate in the Constitution Amendment Bill. The government argues that this will reduce flexibility as any change in the rate, say to deal with a natural calamity in a state, will require an amendment to the Constitution. One option is to specify a cap on the GST rate, another is to incorporate the rate in the other legislations to be enacted by the states and Centre. A second sticking point is the proposed additional levy of up to 1% by manufacturing states such as Gujarat, Maharashtra, Tamil Nadu and Karnataka to compensate them for losing out because the tax will be levied at the point of consumption instead of the point of production. The Subramanian panel has recommend that this levy be done away with.
This issued might be resolved by the Centre agreeing to compensate these states. The third point is the Congress also wants a panel of judges to deal with disputes instead of the proposal to let the GST Council decide. It is arguing that the complainant can't be the arbitrator too. Finance minister Arun Jaitley counters that by saying this will result in the legislature surrendering its powers to the judiciary.Some of the regional parties too are not in favour of letting a panel of retired judges to decide on the issue.
What is GST?
10 key points
The Times of India, August 4, 2016
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1. GST is a uniform indirect tax levied on goods and services across a country. Many developed nations tax manufacture, sale and consumption using a single, comprehensive tax.
2. Central Taxes GST would replace Central Excise Duty, Service Tax, Additional Duties of Excise & Customs, Special Additional Duty of Customs, and cesses and surcharges on supply of goods and services.
3. State Taxes GST would replace VAT, Central Sales Tax, Purchase Tax, Entry Tax, Entertainment Tax, taxes on advertisements, lotteries, betting and gambling, and state cesses and surcharges.
4. The main objectives of GST would be to eliminate excessive taxation. Central and state agencies often calculate taxes based not on the original cost of the product, but over and above the several layers of tax already levied on the product. This negatively affects the Gross Domestic Product of a nation.
GST is also expected to disincentivize tax evasion, lower tax rates, and make business operations easier.
5. The current NDA government and the Opposition disagree over the contents of the GST Bill
6. According to PRS Legislature Research, the 2011 Bill defined GST as any tax on the supply of goods or services, except taxes on the supply of petroleum crude, high speed diesel, motor spirit (petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption.
7. The 2011 Bill provided for the creation of the Goods and Services Tax Dispute Settlement Authority to adjudicate disputes between the central government and state governments on the issues of GST resulting in any loss in revenue, and affecting the harmonized structure of the tax. The 2014 Bill deleted the provision of such an authority.
8. The 2014 Bill defined GST as any tax levied on the supply of goods, or services, except taxes on the supply of alcoholic liquor for human consumption.
9. In addition, the 2014 bill also deleted a provision of the 2011 bill that imposed restrictions on states on taxation of products deemed of special importance in inter-state trade or commerce.
10. It also removes a 2011 provision allowing states to tax the entry of goods into a local area that are for use or sale only to the extent levied by a Panchayat or a Municipality.
The GST’s rates
4-slab GST will spare common items in bid to curb inflation, Nov 04 2016 : The Times of India
Council Clears Cess On Coal, Sin & Luxury Goods
India's most ambitious tax reform since Independence took a giant leap forward in Nov 2016 with the Centre and states agreeing on the rates for the Goods and Services Tax (GST). To be implemented from April 1, 2017, the GST--which will subsume several taxes including excise duty and VAT--will have four rates. Currently, there are 15-20 tax slabs between the Centre and states. Coal, luxury and sin goods (eg cigarettes and alcohol) will attract cess in addition to the GST. Finance minister Arun Jaitley said the GST Council had agreed to zero-rating for nearly half the items in the consumer price index (CPI) basket as well as major foodgrains, while goods of everyday use would attract 5% GST, as against 6% proposed earlier. In addition, there will be two standard rates of 12% and 18%, a move meant to blunt the Congress party's demand for a standard 18% levy .White goods and similar products will face 28% tax, instead of 26% suggested by the Centre earlier. The cess on luxury and sin goods, and the clean energy cess on coal, should help the Centre mop up around Rs 50,000 crore to compensate states for any revenue loss due to GST. There will be a sunset clause of five years, which will be reviewed on a year to year basis... Compensa tion through tax collec tions will have a cascading effect. There will not be any additional levy ,“ finance minister Arun Jaitley said, while explaining the rationale for the cess that has been questioned by many . While tobacco currently attracts 65% levy, the current rate on aerated drinks is around 40%.
The government suggested that the rate structure would be non-inflationary as rates on several items would come down. The finance minister said that the burden on the consumer would “hopefully“ be lower.
He said that instead of the current slab of 30-31% on products such as white goods, which includes excise duty of 12.5% and state VAT of 14.5%, the highest slab under GST will be 28%. The additional benefit of two percentage points that will accrue to the government is being used to reduce the lowest slab from the proposed 6% to 5%. In addition, some products such as soaps, oil and shaving sticks, which would have gone into the 28% bracket, will now move to the 18% slab.
The cess is something that has still not found acceptance.
“The ideology to come out with the rate structure is to avoid any negative impact on the CPI from inflation perspective. Hence the goods of mass consumption will have a lower tax incidence. While one can have some guesswork around the GST rate for some of the products, the devil is in the detail when the final classification list will be released which is the most challenging task for the policy makers.Still, imposition of cess is going to be an area of concern from the practical and admin istrative perspective,“ said Santosh Dalvi, indirect tax partner at consulting firm KPMG's India office.
Some also suggested a low rate for education and health.“Lower rate of 5% for items of mass consumption along with zero rated tax structure for essential commodities would make GST less regressive and pocket friendly for common man. Much to the joy of the consumer and industry , tax costs might even go down for commodities to be taxed at 5% provided the credits on procurements are fully allowed. While the lists are yet to be rolled out by the GST Council, all essential commodities and services, including education and health care should feature in the list of special concessional rate of 5% (if not zero rated),“ said BMR indirect tax leader Rajeev Dimri.
The Bill tabled in April 2017: aspects
Lubna Kably, Free lunch, other staff perks may trigger GST, Mar 29, 2017: The Times of India
An employer-employee relationship is no longer the sole purview of the HR department. Under GST, which is set to be introduced from July 1, the taxman could also be probing various facets of it.
GST would be payable if there is a supply of free goods or services to an employee exceeding the stipulated sum or if an employee avails of a company asset for personal use (say , a car). Also, input tax credit (taxes paid on procurements that can be set off against the tax liability) will not be available on supply of various facilities to employees, including life and health insurance.
TOI spoke to tax experts to decode these provisions contained in the GST Bills tabled in Parliament on Monday .
Supply made without consideration (to employees):
Supply of goods or services to a related party (a term that includes employees) without consideration, when made in the course of furtherance of business, is taxable under GST.
An exception has been carved out in the GST Bill.Schedule 1provides that “gifts“ not exceeding Rs 50,000 in value in a financial year to an employee shall not be treated as supply of goods and services. Amenities provided to an employee, which is not part of his or her cost to company (CTC) package, could now possibly attract a GST levy ,“ says Sachin Menon, indirect tax leader at KPMG India.While cost to company structures differ, typically , free lunch, car drops, scholarship to employee's children are not part of the CTC package, which leaves India Inc to grapple with GST complexities.
“The moot question is whether provision of a certain facility is a `supply of goods and services' or is it a provision of a benefit to employees arising out of an employment contractual obligation?“ asks Sunil Gabhawalla, CA and indirect tax expert. According to him, certain benefits that are made available to employees, like a shared car for dropping employees back home or even food provided in the cafeteria should be out of the purview of this provision and not subject to GST.
The term gift has not been defined in the GST bills. Going by its dictionary meaning, a gift is something voluntary supplied without any consideration. It does not stem from any contractual obligation. Seen in this light, given that the term `gift' has been used for carving out the monetary exemption, only items incidental to employment, like an award to an employee, or Diwali gifts should come under the GST levy, if these exceed the monetary limit per employee,“ says Uday Pimprikar, indirect tax partner, EY India.
“While employers could include various amenities as part of CTC, it would result in practical difficulties. For instance, if free food is included as part of CTC, would employees who bring their own lunch, seek compensation? The added problem is classification and application of the correct GST rates,“ adds Menon. relates to activities to be treated as supply of goods and services. Here, clause 4(b) provides that where goods held for the purpose of the business are put to any private use, whether or not for a consideration, such usage would result in a supply of services and a GST levy . “Going by the strict inter pretation, if a company provides a car to an employee for his use (both official and private) the usage could be considered as a supply of service to the employee, which is a taxable event for GST. In such acase, the company should be given the benefit of input tax credit and proper valuation norms must exist to ensure that GST is levied fairly and not on the fair market value, but rather the cost or depreciated value of such assets, says Pimprikar. “Based on past judicial decisions, it can be argued that levy of GST would apply only if it is the proprietor himself who has put a business asset to use for perso nal purposes,“ says Gabhawalla. It remains to be seen how the authorities will interpret this provision.
Denial of input tax credit: The final bill also includes a list of services for which input tax credit will not be available. Some of these are facilities extended to employees such as free or subsidised food and beverages at the workplace, sponsorship of club or fitness centres membership, cab facilities, group life and health insurance. The only silver lining is that input tax credit will not be denied in cases of services to be notified by the government, these will be those where the employer is obligated under any law to provide the same to its employees. Input tax credit will also not be available as regards the cost of travel benefit extended to employees on vacation. Currently , an input tax credit was not available for such employee related facilities, but India Inc was hoping for a seamless input tax credit mechanism under GST.
“GST has widened the definition of input goods or services to mean any goods or services used in the course of furtherance of business.Thus, in the absence of this restrictive clause, an employer could have set off the GST incurred on providing free lunch at the cafeteria, against his other GST liability . Perhaps, owing to this wide definition, the government has sought to deny the input tax credit in certain cases,“ says Pimprikar.
For now, India Inc is waiting to see which facilities get notified for which they could then claim an input tax credit. Input tax credit is the credit available for taxes paid on inputs (procurements) which can be set off against the tax liability .
History
Congress’ aggressive disruption of LS
The Times of India, Aug 04 2016
The hurdles in the way of the GST law were as much political as disagreements over clauses and design of the tax reform, as the government's lack of numbers in Rajya Sabha gave Congress a stranglehold on the legislation. The passage of the Constitution amendment bill was hardly seen as a major issue when the Modi government assumed office and Congress functionaries wondered why the new dispensation was taking its time over the reform measure.
Things changed swiftly as BJP and Congress settled into a deeply hostile and suspicious relationship, souring any possibility of bipartisanship.Congress's aggressive disruption of Lok Sabha despite its reduced strength of 44 over `Lalitgate' made it clear that the main opposition was not going to be deterred by BJP's emphatic win in 2014.
Congress's tactics of disruption and delay in the Upper House centred around party vice-president Rahul Gandhi's conviction that the Modi government should not be given easy passage with legislation as an act of assertion.
BJP functionaries said the demands raised by Congress were an afterthought as issues like writing an 18% tax rate or the formulation on a dispute resolution mechanism were not part of the bill piloted even by the UPA government.
The decision to block the GST bill was also driven by Congress's calculation that delaying the reform measure would slow down the Modi government's political momentum and the frustration in the BJP camp indicated that this was a worry.
The balance began to slowly tilt towards the government as states under regional parties began to back the law and BJP launched a powerful campaign alleging that Cong ress -unable to swallow its Lok Sabha defeat -was seeking to undermine PM Narendra Modi's mandate.
It was a charge Congress vehemently denied, but BJP members found it a convenient argument that helped cover up some of the government's shortcomings in its two years in office.
The charge stung and barring success in Bihar, the strategy did not deliver any political gains in state elections, where Congress found itself on a losing wicket.
Business also played a role in convincing Congress that its opposition to the GST law, despite the party's claim that it was raising important issu es, was being seen as a negative tactic and was perceived to be hurting the economy .
In an astute move, Congress agreed to drop its insistence on writing the tax rate into the Constitution amendment as long as it was ring fenced. The government's decision to bring only the amendment now and leave the central GST bill for the winter session smoothened the path further.
The view of several state finance ministers that an 18% rate may not be adequate and the daunting process of getting parliamentary approval to alter the rate also persuaded Congress to amend its position.
Cabinet approves key changes in GST Bill
The Times of India, Jul 27, 2016
Cabinet approves key changes in GST Bill
In a bid to strengthen the chances of passage of the crucial GST Bill, the Union Cabinet here on Wednesday approved key changes in the proposed legislation, including dropping the proposed one per cent additional tax on inter-state sale, sources said.
This provision's removal has been a key demand of the opposition Congress.
The cabinet, which met under the chairmanship of Prime Minister Narendra Modi, also agreed to include the mechanism to compensate states for all loss of revenues for five years.
Minister of State for Parliamentary Affairs Mukhtar Abbas Naqvi earlier told the Rajya Sabha that the GST Bill will come up for discussion in the first week of August. It is pending in the Rajya Sabha, where the National Democratic Alliance government lacks a majority.
West Bengal Finance Minister Amit Mitra chaired the meeting of the empowered committee of state Finance ministers to form a consensus on the bill, and the states agreed to keep the GST rate out of the bill. However, there was no decision on what the rate should be as all the states did not agree on the proposed 18 per cent rate.
The Congress demands that the constitutional amendment bill sould provide for capping the GST rate at 18 per cent. Mitra said a broad consensus has been worked out on the GST and all are of the opinion that taxes on the common man need to be reduced. At the same time, there is a need to ensure that the trend of revenue collection continues, he added. "It is very important that tax on the common man is significantly reduced. At the same time we need to safeguard the taxes going to the state exchequer," he said.
The states are demanding that there should be no dual control on businesses with an annual turnover of less than Rs 1.5 crore, and this issue has to be resolved for the GST to happen, Mitra said after the panel's meeting. "We will work towards this so that small businesses do not suffer. It has to be through a consensus for the GST to happen," Mitra added. The Congress is also demanding an independent dispute resolution mechanism for the GST. The GST was first mooted by the previous Congress-led United Progressive Alliance government.
Congress’ U-turn
The Times of India, Aug 04 2016
Congress made a bold bid to deny the Centre the bragging rights for rolling out GST, stating that its demand for changes in the draft had made it “pro-people“ even as it stressed that these were not a pretext for obstruction. P Chidambaram told reporters the Centre had accepted the call for removal of 1% surcharge and reformulation of dispute redressal mechanism because the GST draft was “flawed“.
He also said Congress would continue to insist on the 18% cap while expressing confidence that the Centre would include it in the subsequent legislation. He warned that a high rate would be inflationary and hurt the common man but put the burden of convincing states in favour of a lowrate cap on the FM.
The states voiced support for around 23%.
The arguments at the Congress briefing sought to lay the ground for the party to fight back in popular perception over its dramatic change in position after it single-handedly held back GST for a year. Veterans like Anand Sharma spoke in RS in Hindi to carry the message wide in a bid to explain to voters the party's about-turn.
After sound & fury, CPM yields quietly:
Despite the noises CPM made against the bill, it was a foregone conclusion that it would support it as the party had come around in the last month or so. Two factors were at play . One, the party's changed equation with Congress. And, two, support to GST by the newly-elected CPM regime in Kerala.
Political parties’ stances on GST/ 2017
BJP cost country Rs 12L cr by blocking GST: Oppn, Mar 30, 2017: The Times of India
Congress leader M Veerappa Moily accused BJP on Wednesday of blocking passage of the GST bill when UPA was in power, causing a loss of over Rs 12 lakh crore to the country. He alleged that the government had subverted Rajya Sabha by bringing legislations to the Lower House as money bills.
Soon after finance minister Arun Jaitley introduced four bills in Lok Sabha to give effect to the goods and services tax (GST), Moily exhorted Rajya Sabha members to resign if they had any pride left.
“It is the biggest step in federal law, federal finances.You are a representative of the council of states. Finance minister, you are denying rights to yourself,“ Moily said, pointing towards Jaitley , a Rajya Sabha member.
Moily said when BJP was in opposition, it put hurdles in the way of the GST bill, leading to loss of Rs 12 lakh crore. “The country has faced around Rs 12 lakh crore loss because of delay in implementing the GST bill. More than seven to eight years have passed,“ Moily said.
BJD's Bhartruhari Mahtab aired his reservations regarding the move to bring agriculturists in the tax net.
TMC's Kalyan Banerjee said the West Bengal government had supported the “path-breaking“ GST legislation but expressed concern over the government's hurry in its implementation.
GST Council
The Hindu, November 4, 2016
Puja Mehra
GST Council pegs the GST rate structure at 5, 12, 18 and 28 per cent.
The Goods and Services Tax (GST) will be levied at multiple rates ranging from 0 per cent to 28 per cent. Ultra luxuries, demerit and sin goods, will attract a cess for a period of five years on top of the 28 per cent GST.
Overcoming opposition from some States, the GST Council finalised on Thursday a multiple-slab rate structure, including the cess, for the new indirect tax. The quantum of cess on each of these will depend on the current incidence of tax.
On nearly half of the consumer inflation basket, including food grains, the GST will be at 0 per cent, Council Chairman and Union Finance Minister Arun Jaitley told a media conference after the meeting.
The approved slabs vary slightly from the proposal the Centre had moved at the Council’s last meeting.
The lowest slab of 5 per cent will be for items of common consumption, Mr. Jaitley said.
There would be two standard rates of 12 per cent and 18 per cent, which would fall on the bulk of the goods and services. This includes fast-moving consumer goods.
Most services are expected to become costlier as the ones being taxed currently at the rate of 15 per cent are likely to be put in the 18-per cent slab, said Revenue Secretary Hasmukh Adhia. The services being taxed at lower rates, owing to the provision of abatement, such as train tickets, will fall in the lower slabs, Mr. Adhia added.
The highest slab of 28 per cent will include white goods and all those items on which the current rate of incidence varies from 30-31 per cent.
The principle for determining the rate on each item will be to levy and collect the GST at the rate slab closest to the current tax incidence on it.
Mr. Jaitley said the Council will review annually the tax revenue raised from the cess that will fund compensations from the Centre to States for losses arising out of the transition to the GST.
The Centre gave a constitutional guarantee to States for making good these losses for a period of five years.
“If the revenue raised from the cess is found to be in excess of the sums needed to finance the compensations to States, the Council will decide to what use the surpluses will be put,” Mr. Jaitley said.
The GST will subsume the multitude of cesses currently in place, including the Swachh Bharat Cess, the Krishi Kalyan Cess and the Education Cess. Only the Clean Environment Cess is being retained, revenues from which will also fund the compensations.
Though on the expiry of the five-year period the cess will no longer be collected, the Council will, Mr. Jaitley said, revisit the GST rates on ultra luxury and demerit goods.
The Council did not take a call on the GST rate on gold. “GST rate on gold will be finalised after the fitting to the approved rates structure of all items is completed and there is some idea of revenue projections,” Mr. Jaitley said.
Benefits
How almost everybody gains
The Times of India, Aug 4, 2016
After decades of tying itself up in political knots debating a transparent, simple, efficient, one-nation system, India will soon be on a clutter-free tax highway. Around 6 million entities are expected to be covered under GST+ and more than 10 tax rates are likely to fall. Here's a quick look at how GST will impact the economy, businesses and the consumer.
ECONOMY
- Dual monitoring by the Centre & states to reduce tax evasion
- Better compliance through real time matching of supplier & purchaser
- Reduction in approximately Rs 1.8 lakh crore annual loss due to excise duty exemptions
- Cut in Rs 1.5 lakh crore estimated loss to states due to tax exemptions
COMPANIES
- Tax credits to lower tax burden, improve profit margin for some
- No distinction between product and service for tax
- Uniform tax across the country to ease business
- Smooth movement of products across states
- One-time increase in compliance cost likely
CONSUMER
- No tax rates have yet been decided though a suggestion of 3 rates-12%,
- 17-18% and 40% has been made
- Most products are likely to be less expensive over time
- Most services (eg. restaurants, travel, mobile bills, insurance premium) likely to cost more
- Mobiles, jewellery, some readymade wear in some states may cost more
