India: A Post-GST Regime Must Ensure There Are No Remnants Of A Legacy Tax Regime

Last Updated: 1 September 2016
Article by M.S. Ananth and Pratibha Jain

Assignificant as the Constitution Bill (Amendment Bill) 2014 being passed in Parliament is, the passage of a single goods and services tax (GST) law would be even more unprecedented. Given India's complicated division of legislative powers, political landscape and the disparate needs of states, a GST law would be a remarkable achievement with few comparable precedents in the world.

Introducing levies beyond the proposed GST law, or raising these beyond reasonable limits, would defeat the economic benefit of an integrated value-added tax (VAT) regime.The fine print of the model GST law shows that credit is not allowed in respect of all taxes paid under the model GST law. So, increasing such taxes would only raise the cost of goods or services available to consumers.

Chief economic adviser Arvind Subramanian's views were echoed in Parliament when various MPs agreed that a high GST would effectively negate any benefit of the GST.This, in turn, would adversely affect startups that may not be able to absorb the burden of a high tax. For instance, the equalisation levy that is purportedly a tax on services received is enforced through the Finance Act and effectively denies the benefit of any credit under the model GST law or the existing Central VAT (Cenvat) Credit Rules.

High consumption taxes incurred by startups and e-commerce entities will create a cascading effect and may deter consumers. India's goods and services market is price-sensitive and quite elastic, and without taking these factors into consideration, levy of high taxes can have an adverse impact on India's startup and e-commerce entities.

No Space for Surprises

It is important that in an effort to raise revenue from a growing economy , taxes to be levied by the central and state governments are rationalised and all consumption taxes are subsumed in GST. Few things can be a dampener as finding in a post-GST regime remnants of a legacy tax regime that includes levies such as octroi, local cess and other local taxes. The government should also avoid taxing through the Finance Act. Such measures would defeat the economic and commercial objective behind GST.

India's taxation powers are shared between the Union government and state governments, and the Amendment Bill makes changes to these legislative powers. The Bill has deleted certain important legislative entries such as Entry 52 of List 2 (entry tax) and Entry 92C of List 1 (service tax), and amended others such as Entry 54 of List 2 (taxes on sale of petroleum, diesel, alcohol, etc). While the taxation powers of the state have been streamlined, it is imperative that for a GST to be successful, the central government will have to resist levying taxes through its residuary legislative powers in Entry 97 of List 1.

The Amendment Bill and GST may help reduce litigation in traditional dispute areas such as legislative powers of the central and state governments, since substantial taxation powers now vest with the former. However, if these powers are not efficiently exercised, GST may well lead to multiple taxes and more litigation on taxation powers.

For instance, while Entry 52 of List 2, which provides for the levy of entry tax, is deleted, the powers of the state government to impose taxes on goods under Entry 56 remains unaffected. The Amendment Bill has also omitted Entry 92 (taxes on advertisements in newspapers) and Entry 92C (service tax) of List 1.

This is disconcerting as it points to the central government resorting to residuary legislative powers in Entry 97 with more frequency . Entry 97 of List 1provides for the residuary legislative powers (and plenary at that) of the Union government.

These changes to the legislative powers are crucial and integral to the Amendment Bill. It is important that Union and state legislatures respect these changes and the intent of the changes for the GST law to succeed. As every superhero knows, with great power comes great responsibility. And with great legislative power comes even greater responsibility .

Continuing with taxes -such as an equalisation levy or a service tax administered via the Finance Act would defeat the purpose of a centralised VAT. Although there is no morality in taxation, such taxes would be constitutionally dishonest.

No Selfsame Tax

The hard part of a GST law -politic al consensus and constitutional amendments -is done. What is required now is the practical and commercial administration to ensure that the government doesn't score an own goal in raising revenues from GST. It is important that the Union and state governments cooperate. Having a high GST rate would make GST and existing taxes mathematically similar and defeat the purpose of GST.

Keeping the GST simple will also help in cost-effective administration. Ultimately , all of these will help in the government achieving its objective of maximising revenues through indirect taxes.

This article was published in The Economic Times dated August 27, 2016. The same can be accessed from the link.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions