Goods and Services Tax (GST)

The monsoon session of the parliament began few days ago, and the most awaited bill of the session, Goods and Services Tax (GST) will be voted upon. With the clear majority in the Lok Sabha, the NDA government’s real challenge lies in getting it through the Rajya Sabha where they do not have a majority. There have been speculations that the GST bill will be passed this session but that is a matter for another article. Let us see what exactly is the GST bill?

Goods and Services tax is a tax reform and not a money bill, though there was an attempt to introduce it as a money bill to avoid having the Rajya Sabha included in it and pass it without any kind of obstruction from the opposition who hold the power of stopping an amendment there.

The GST will be levied on supply of goods and services and hence the prevalent taxes like excise, VAT, entry tax (which is levied on goods entering a local area), service tax, would no longer be relevant. Which means that instead of having to pay different taxes at different times of a transaction, the GST would simplify this process and just levy one single tax that would consist of all of the above listed taxes. Though there will be a dual system of GST, i.e. both the Centre and the State will levy it together.

Though, Customs is outside GST and therefore it will still be applied on all imports.

An intresting concept that not many know about is that the current tax system is origin based, i.e. the tax that is levied is done on the basis of laws and conditions of the supplier/manufacturer’s state. Whereas the GST will be a destination based consumer tax, where the tax will be levied in conformity with the laws and conditions of the consumer’s resident state.

The percentage of the tax that is to be imposed is supposed to be set by 18% according to the latest information from various sources. It can be changed by the government at any time without having to consult to the parliament. This was one of the major contentions against the bill, the opposition had demanded that the percentage be fixed in the bill and added in the constitution which meant that every time the government wanted to bring a change it would have to go through the entire process of amending the constitution.

Many countries in the world like France, United Kingdom, Canada etc. have adopted the system of GST. Though the system has variations the concept remains the same throughout. They have struggled to arrive at a single fixed rate that is suitable to their economy. In the Indian context, the system adopted is most similar to Canada who also have a fluid GST rate which ranges from 13%-15%.The government can change it anytime they want to, initially it was hight but they have reduced it multiple times.

Another fact that not many know is that, the bill was originally introduced by the Congress-UPA government and not the BJP-NDA government.

This is the GST bill as it is, from the eyes of a consumer and someone who does not have much knowledge in economics and the various concepts related to it, I haven’t dwelled deep into the little nuts and bolts of the entire system. This should help you understand what it really is. If adopted, the bill will be effective from 1st April 2017, the next financial year.

Priyamvad Rai

 

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