Will GST forever remain in files in India??

Touted by Finance Minister Arun Jaitley as the single  biggest indirect tax reform since Independence has been subject to heated debate since it was introduced for discussion in 2009 by the previous UPA government. Now, after years of discussions and negotiations, the states are finally on track to implement this reform viz. the Goods and Services Tax (GST).   image2

The introduction of Goods and Services Tax (GST) would be a very significant step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax, it would mitigate cascading or double taxation in a major way and pave the way for a common national market.

Jaitley said GST will help to reduce tax-on-tax and will be beneficial to the Centre, states, industrialists, manufacturers, the common man and the country at large since it will bring more transparency, better compliance, increase in gross domestic product growth and revenue collections. India is set to move to the new tax regime from April 1, 2016. States will get one-year time to implement the provisions of GST after introduction of the new indirect tax regime from April 2016. The one-year grace period is only a transitory provision and all states will have to finally implement it.

During a meeting held, a suggestion was made by some members of the Parliamentary Consultative Committee that the government should release a consultation paper before the roll out of the GST. The white paper should give details on how much of the revenue generated via the reformative tax is going to be divided among the centre and the states. Whatever is being proposed is falling short of global standards but it is a huge step forward.

The base of the GST has been reduced to exclude alcohol. While petroleum products have been kept within the purview of the GST, these will be taxed at zero per cent for the initial two-three years to ensure smooth transition to the GST regime. Also the states where goods originate can levy 1 per cent additional tax over GST to make up for any revenue loss for the first two years. As regards the compensation to the states on account of any possible loss of revenue following implementation of the GST, Centre will pay 100 per cent compensation in the first three years, 75 per cent in the fourth year and 50 per cent in the fifth year.

GST, though will be levied on all products and services, and will cover all stages from manufacture to sale, it will be charged only on the value added at each stage of the product life cycle. Gradually, reducing the tax to be collectively paid by companies and eventually by consumers. With the GST, ancestral thought of  origin-based tax will shift to destination tax for the manufacturing sector.

A Constitutional Amendment Bill to facilitate the GST was introduced in the Lok Sabha on December 19 and will be taken up in Parliament in the next session. After the constitutional amendments are passed by both houses of Parliament, half of the state legislators will have to ratify them. This will be followed by a discussion on the GST in both houses of Parliament. State legislators will also have to table and pass their own GST Bills. Still we have to wait to see whether GST will ever come out of files in India?

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