The "Goods and Services Tax" (GST) is one of the most significant tax reforms in India post independence. The idea of a uniform Goods and Service Tax was debated for more than a decade before it became a reality with the passage of the Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014. The President of India has approved it post its passage in the Parliament (Rajya Sabha and Lok Sabha) and ratification by more than 50 percent of State legislatures.
GST is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. The rationale of GST is that there should not be multiplicity of taxes. It will replace all indirect taxes levied on goods and services by the Central and State Governments. It will convert India into one uniform economic market with a uniform tax rate. The GST will subsume most of the indirect taxes of the centre and the states including excise duty, service tax, value-added tax, entertainment tax, luxury tax and octroi. However, petroleum products, tax on alcohol/liquor consumption, stamp duty, custom duty and tax on sale and consumption of electricity are not covered under the purview of GST.
After the approval and ratification by the States, GST Council has come into existence. It will be the key decision-making body that will take all important decisions regarding the GST. It will inter-alia decide the rates of tax, slabs/bands for different classes of goods and services, goods and services exempted from tax, mechanism for dispute resolution etc.
Now, the next stage is passing three enabling laws; two by the Parliament and One by the State legislatures. The Two Central Laws would be in relation to the Central GST and Inter-State GST. The State Legislation would be with regard to State GST. The Council itself would discuss the drafts of those laws. The Council has huge responsibilities to discuss various modalities including taxation structure and operational models. The next important decision which the Council has to take is to decide the rate of tax. In India, the indirect tax revenue component is 62.3%. The indirect tax affects the entire population. Therefore, the fixing of rate of GST by taking everyone on board is a big challenge for the Council.
Some of the States had reservations on the GST owing to adverse financial implications. Some of the manufacturing States felt that GST was based on the destination principle and therefore, consuming States will benefit more. The manufacturing States wanted an adequate mechanism for their own compensation. There is a provision for five-year compensation to the states for possible loss of revenues.
About 140 countries across the world have implemented the GST. Thus, introduction of GST in India would be at par with the world order. It is expected that implementation of GST will contribute substantially to the Gross Domestic Product (GDP). It will contribute to ease of doing business and also give boost to investment in the country.
If the formalities with regard to passing of three enabling laws by the Parliament and the State legislatives are completed within this year, there is every possibility that GST will be a reality effective April 1, 2017.
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