Decks cleared for One Nation, One Tax Regime
With the passage of four key supplementary GST (Goods and Services Tax) Bills — Central Goods and Services Tax (CGST) Bill, Integrated GST (IGST) Bill, Compensation GST (CGST) Bill and Union Territory GST (UTGST) Bill by the Rajya Sabha on April 6, which have already been passed by Lok Sabha on March 29, decks have been cleared for their coming into force and to be rolled out on July 1 this year. Hailing it as the historic step, Prime Minister Narendra Modi called it “New Year, New Law, New Bharat” as the government moved a step closer towards meeting the July 1 deadline for rollout of Goods and Services Tax in the country. According to media reports, 12 meetings of the GST Council were held to ensure the process of drafting the bill and rolling out GST, which is said to be based on consensus and recommendations. A fifth Bill will be passed by the state Assemblies for the legislative process to complete the rollout of the GST regime.
The GST Bill, according to experts, is an indirect taxation mechanism wherein most of the existing taxes will be merged into a single taxation system and after its coming into force, it will allow the Centre and the states to levy indirect tax on manufacture, sale and consumption of goods and services across the country. In other words, the GST would put all taxes levied by state and Central government in one basket and merge them into a single-tax system, thus doing away with multiple-taxation and promoting the concept of a common market for all.
The GST is governed by the GST Council which is headed by the Union Finance Minister. The GST Council has approved a four-tier uniform tax slab of 5, 12, 18 and 28 per cent on goods and services, plus an additional cess on demerit goods such as luxury cars, aerated drinks and tobacco products.
Food items will not attract any tax and have been kept in the zero-per cent slab. Similarly, petroleum products, although included under the GST, will remain in zero tax slab as of now. However, the GST Council is yet to take a call on whether to keep alcohol under the Goods and Services Tax. With the GST coming in, Centre-level taxes like Sales Tax, Excise Duty, and state-level taxes like Value-added Tax (VAT), Entertainment Tax and Luxury Tax will be subsumed.
The Central Goods and Services Tax (CGST) Bill will allow the Central government to levy and collect tax on intra-state supply of goods and services. The Integrated Goods and Services Tax Bill 2017 provides for levy and collection of tax on inter-state supply. The Compensation GST Bill will provide compensation to states for the loss of revenue they may incur owing to implementation of the GST. The Union Territory Goods and Services Tax will enable levy and collection of tax on intra-state supply of goods and services or both by union territories.
As per media reports, the GST Council, which is empowered to fix tax rates, is not aimed at compromising legislative independence of Parliament and state legislatures, as the legislative control would still remain as it is. The governments at the Centre and the states will incorporate them in their respective Financial Statements and Budgets. Hence, the final control will continue to be vested in them.
With regard to objections from the Opposition on the term “agriculturist” being defined under the GST, Finance Minister Jaitley said it was for the limited purpose of their registrationand the farm products would not be taxed. With regard to bringing the GST Bills under the rubric of ‘Money Bill’, Jaitleycited provisions of the Constitution, which enjoin that any tax matter will be under this category or will be deemed to be so. The Finance Minister also justified the multiple tax rates on the ground of keeping in mind the class of commodities and their end-users and he also assured that the powers and jurisdiction of the office of CAG will not be compromised as they flow from the Constitution and the CAG Act.
While expressing his party’s support to the GST, the Congress spokesperson lamented: “…[B] ut the nuances and manner in which it (GST supporting laws) is passed is in contravention of parliamentary sovereignty… It is a historic day where Parliament’s sovereignty has been removed insofar as taxation is concerned and they have no power to abrogate.” On the contrary, Jaitley, while describing it a very significant step forward, has said: “We are virtually seeing history in the making because we are now going to be transforming into a new system of indirect transaction. The GST idea has created a grey area (with regard to power of Centre and states)… Taxes will be jointly imposed by Centre and states, there will be one tax.”
Implementation Dilemma
Some experts have opined that the biggest challenge for a smooth GST rollout is coordination between states and the Centre to ensure uniform tax rates for goods and services. This fact has been admitted by Modi’s chief economic adviser, Arvind Subramanian, in a recent TV interview wherein he is reported to have said: “It’s a massive tax change, administrative change at the centre and the states, lots of procedures, processes, new forms, so there’s a huge implementation challenge, but I think that’s going to be a temporary thing. Initially there’s going to be bumps on the road.”
The corporate sector has hailed the GST bills as a ‘concrete step’; nonetheless, apart from the classification of goods and services, companies are also seeking clarity on whether existing tax exemptions will continue and need enough time to prepare their technology and compliance structures, he said.
Some experts are of the view that over the next couple of months all the state legislatures will share their powers of taxation. In the process of sharing and jointly exercising the powers to tax, the GST Council will be born as India’s first truly federal institution. Neither the Parliament on its own nor the state legislatures individually or jointly can override the collective recommendations of the GST Council. In other words, the GST regime has created an institutional and Constitutional framework for cooperative federalism in the arena of indirect taxation.
In the GST regime, the Union and the states will be vested with concurrent powers to levy GST on intra-state supply of goods and services and the union will be vested with the exclusive power to levy GST on the supply of goods and services in the course of inter-state trade or commerce which includes supply in the course of imports into the territory of India.
Since CGST and SGST will be levied on the same tax base, it is essential that the provisions of these laws should be similar so as to have harmony in the working of the system. Moreover, the IGST will have forward and backward linkage with CGST and SGST for Input Tax Credit (ITC), the laws dealing with these taxes will have provisions that will ensure a seamless and effective ITC mechanism. GST which has widely been touted as a One Nation One Tax regime would create a single nationwide market.
Experts say GST will drag India’s GDP by up to 2 per cent. Many experts opine that in short term GST will emerge as a mixed bag for the common man because under GST, most of the services are likely to become costlier and for goods, there will be a mixed trend as far as their prices are concerned; however, in long term, GST will leave a positive impact on most of the sectors in Indian economy. The possibility of an inflationary impact at the time of moving from indirect taxation system to GST regime is not ruled out.