The Big Picture- GST Bill: Is It Ready for Passing and Implications
One of the biggest financial sector reforms now seems to have finally reached the stage; Goods and Services Tax. Right from its official mention in 2009, it took several years to build consensus on GST. Thereafter, the Government of India introduced the 122nd Amendment Bill, 2014 in the Parliament to facilitate the introduction of GST in the country. The Bill has finally been passed by both the Houses in 2016.
The basic purpose of GST is to integrate taxing of goods and services at differential rate separately into one tax rate with both Centre and States taxing concurrently as the central government GST (CGGST), the state government GST (SGGST) and an Integrated GST (IGST). The final amendment of 2016 has stated that the centre’s share of IGST and CGST will be distributed among the Centre and States.
Some of the causes of delay in the passing of the 2014 Bill and the amendments made in the 2016 Bill are as follows:
|An additional tax of 1% on supply of goods will be levied by the Centre on inter- State trade or commerce (clause 18)
|GST Council may decide upon modalities to resolve disputes (clause 12)
|GST Council shall establish a mechanism to adjudicate any disputes
|Compensation to States
|Parliament may by law provide for compensation to States for any loss of revenues up to 5 years
|Parliament shall, by law provide for compensation to States for any loss
|Demanded by opposition for 18%
|Opposition agreed to forego the demand
Benefits from GST:
- It will help to get rid of the current patchwork of indirect taxes by simplifying them.
- It will enlarge the tax base (threshold level of income on which taxes become applicable) for larger resource generation.
- Due to simplification of tax structure, large scale sectors will benefit as there will be one general rate to be paid by all companies.
- The cascading effect of taxes will reduce in the supply chain thereby cutting production costs making exports more competitive.
Challenges that might come:
- Since the poor and the working classes spend a greater proportion of their income on essential consumption therefore, social protection measures are required to neutralize the effect of taxes on them. The exemption to small scale sector up to 1.5 cores is one such step proposed in this regard.
- Inflation might increase for a short span of time due to increase in tax rate which might further lead to tax evasion.
- In order to ensure successful implementation of GST, robust technology is the requirement.
- The items to be included under the purview of GST might be a reason of conflict among states as the needs and requirements of all states in India are different from each other. For example- the needs of states like Jharkhand and Bihar might significantly vary from those of Karnataka and Kerala.
The present GST is way better than previous tax regimes and it would be unrealistic to expect a perfect GST. The reforms made in the indirect taxes are commendable and the government’s decision of propelling GST would place India’s economy at par with other mature economies of the world.