Understanding GST (Part I)…

The countdown to the implementation of Goods and Services Tax (GST) has begun with Bihar becoming the second state to clear State GST (SGST) bill today after Telangana. The Parliament has already passed the centre GST (CGST) and Inter-state GST (IGST) late last month. A look at the bill and various complexities attached to it..

GST implementation is not only a gigantic exercise but also equally complicated. This began with the passage of constitution amendment bill by Rajya Sabha and Lok Sabha in Aug’16. Since constitution does not give centre the right to tax ‘sale of goods’ and similarly, states have no right to tax “manufacture of goods” and services, this constitutional amendment was required to change taxation powers of both centre and states. Further, since the bill involved dilution/interference with the power of states, it required ratification by at least half the states as per the provisions of the constitution. The process, including the assent by the President, got completed on 16th Sept’ 16 (101st Constitution Amendment Act), nearly 21 months after it was introduced in Lok Sabha.
A unique feature of the GST implementation process is that the Parliament, as also the States, have ceded their power to fix tax rates and other related laws in favour of the GST council. The GST council will comprise of the Union finance minister and finance ministers of all the states where centre would have one-third weightage in decision making and states will have two-thirds. The transfer of power to the council means centre or states cannot change tax rates on any goods or services on its own (other than certain exceptions) even if there is a compelling need. It will have to take the proposal to the Council which will take the final decision.
There is considerable confusion on what all taxes GST would replace. Major categories of taxes it would replace are Excise duty, Service tax, State VAT (value added tax), Central Sales Tax (CST) and all forms of Entry Taxes such as Octroi. Entry taxes is an important element since it currently acts a serious deterrent to free flow of goods across states. Even though it does not replace customs duty, it does replace additional Duties of Customs (CVD) and Special Additional Duty of Customs (SAD). CVD and SAD are additional taxes levied on imports over and above the customs duty to bring the imported goods on par with domestic taxation which may be subjected to higher tax rates. Other taxes it would subsume are luxury & purchase tax, state cess on supply of goods or services, taxes on advertisements, lotteries etc.
Despite this herculean task, all products do not come into the GST. Five specified petroleum products (crude oil, diesel, petrol, natural gas and ATF), which account for lion’s share of total government tax revenue, would continue to be governed by the existing tax regime and shall be included in GST after the council’s recommendation, may be, after the transition for rest of the goods is complete. Other than that, tobacco and tobacco products would continue to be subjected to central excise duty in addition to GST.
Earlier references.. (There could be some overlap also).
(Image courtesy of CBEC website)

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