Welcome to GST Café, yet another effort in Vaish's
incessant endeavour to provide you with the best. We bring this
newsletter series GST Café to make it intellectually
exciting and enriching experience of sail through transition phase
to GST. We intend to ensure that the process of transition to GST
is smooth by sharing our views on developments. At the same time we
also solicit your feedbacks so that we can mutually benefit in this
process of learning and unlearning while we move towards the
eagerly awaited taxation system: 'GST'.
GST Rollout: Are we there yet?
Need of GST: An ideal indirect taxation system
collects taxes at various stages of production, supply and retail.
It is based on the value that the producers, suppliers and
retailers individually add to the product. However, needless to
say, the current tax regime is unfairly skewed against producers
and service providers with its inherent limitations in utilization
of tax credit.
The motive for the introduction of GST is to
simplify India's tax structure, broaden the tax base and to
create a single unified market in the interest of the economy. With
this background, implementation of GST becomes a necessity.
The story so far: The first discussion paper
issued in November 2009 presented the roadmap for GST. However, the
GST rollout is already delayed by 5 years from its original
GST proposes a multi-tiered taxation system i.e. taxes at
federal level would governed by Central Government, while at State
level they are governed by State Government. Equal powers to tax
goods and services would be vested to Centre and States.
Implementation of a unified GST system requires the devolution of
equal powers in State and Central Governments. This requires an
amendment in the Constitution of India. The Constitutional
Amendment Bill is required to be passed by both the houses of the
Parliament with 66% majority. Also, the bill is also required to be
ratified by half of the states prior to its ascent by the President
of India. Currently, the revised Constitutional Amendment Bill has
been passed by the Lok Sabha. The Rajya Sabha has referred the bill
to a Select Committee and has asked that the committee to submit
its report on the last day of the first week of the Monsoon
Session. Upon the amendment, model GST statutes are expected to be
enacted. The government has proposed April 1, 2016 as the rollout
Considering the current political environment, the entire
process appears to be an uphill task. A lot of states are not on
the same boat as the Central Government citing the following
The primary concern for the states has been the compensation for
the perceived loss of revenues owed to the subsuming of several
state taxes into the GST model. Upon multiple rounds of
negotiation, taxes on petroleum and alcohol have been kept out of
GST. States would continue to tax petroleum and alcohol. Also, an
INR 33,000 Cr. compensation (in separate tranches) have been
proposed for the states to make up for the loss of Central Sales
The idea of bringing parity of taxes between the states is not
desirable to certain states. The implementation of GST would bring
about a common tax rate for all the states. Thus, it is argued that
a state's fiscal autonomy may get marginally compromised due to
parity of taxes;
Thirdly, the Centre is facing problems in devising of an
appropriate model for the taxation of inter-state transactions in
goods and services. Currently, the Constitutional amendment Bill
has proposed an additional tax at the rate of 1% leviable on supply
of goods, when such supply takes place in the course of inter-state
trade or commerce,
However, given the recent developments and the urgency with
which the current federal government has taken up the task, we
expect implementation of GST to be a certainty. Whether the
deadline of April, 2016 would be met or not remains to be seen.
Unanswered Questions: In addition to the above
issues, a number of questions still remain as we move closer to the
Revenue neutral rate: Till now, there is no clarity as to the
Final revenue neutral rate, with speculations ranging between 18%
and 27%. The GST council is expected to decide the final revenue
The proposed revenue neutral rate (18%-27%) is expected to make
services more costly. Currently, services are taxed at 12.36%,
which is slated for an increase to 16% upon ascent of the Finance
Will GST be implemented in phases or on one single date.
GST café would bring to you the developments on a
fortnightly basis. We look forward to your opinions and
The content of this article is intended to provide a general
guide to the subject matter. Specialist professional advice should
be sought about your specific circumstances. The views expressed in
this article are solely of the authors of this article.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Cummins Inc. is a foreign company, rendering services in respect of desktop/laptop software license and internet mail facilities to its Indian associated enterprises, i.e. CIL and CSSL which were paying IT charges provided by the taxpayer.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).