Goods and Services Tax – GST – By: – ARPIT HALDIA – Dated:- 13-2-2016 Last Replied Date:- 30-12-1899 – Goods and Services Tax i.e. GST has been in the news for numerous reasons during the last decade be it the game changing concept in the history of Indian Economy or which GST Approach should be preferred i.e. common GST or Dual GST or whether Indian political system has the required will and common approach for implementation of GST and discussion has gone to the extent of deciding that whether it would anytime be implemented in India or not. What exactly is Goods and Services Tax, popularly known as GST . The Report of the Task Force on Goods and Services Tax Thirteenth Finance Commission referred to the report of the Task Force on Implementation of the Fiscal Responsibility and Budget Management Act, 2003 as follows: Accordingly, the Task Force recommended that a well designed destination-based value added tax on all goods and services is the most elegant method of eliminating dist
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s a loser. It is unquestionably a very important moment because the whole process of indirect taxation in India will change once the GST itself is implemented. There will be uniformity to taxation as far as the whole country is concerned. There will be a seamless transfer of goods and services. The other important feature of this taxation is that there would be no tax on tax. It may bring inflation slightly down. Economists estimate that it has a potential to give a boost to India s GDP itself. Therefore, GST is a destination based Multipoint Tax system covering in its ambit both Goods and Services. All stages of production and distribution are held as mere pass through wherein tax paid is given as a credit to be adjusted against the liability to be paid at the next stage and tax finally sticks or gets added to the cost at the final consumption stage in the taxing jurisdiction. It has been further described as a destination based VAT Type dual Goods and Services Tax. There are so many
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Ministry of Finance, Government of India released in the month of March 2009 wherein it was stated that The state VAT design is based largely on the blueprint recommended in a 1994 report of the National Institute of Public Finance and Policy, prepared by a team led by late Dr. Amaresh Bagchi (hereinafter, the Bagchi Report ). This Report by Dr Amaresh Bagchi commonly referred to Bagchi Report on Reform of Domestic Trade Taxes in India: Issues and Options , National Institute of Public Finance and Policy, New Delhi stated the tax Structure as prevalent in India at that time was as follows: Archaic, irrational, and complex – according to knowledgeable experts, the most complex in the world . The Task Force on Implementation of the Fiscal Responsibility and Budget Management Act, 2003 July 2004 commented upon the Tax Structure prevalent in India at that time as follows: high import tariffs, excises and turnover tax on domestic goods and services have enormous cascading effects, leading
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ing cascading effect of multiple taxes and was more prone to tax evasion and avoidance. The Tax Rates were very high as the taxation base was very narrow, therefore there were political lobbying for exemptions and lowering of Tax Rates. The tax system at time was not providing a level playing field to all the market players. The neutrality principle of taxation provides that the taxes should be such that they provide a level playing field to all the market players and tax should not be a factor in the decision making of the consumer. There were classification issues as there were multiple Tax Rates and most surprisingly there were huge conflicts and competition between the States for lowering of Tax Rates going even to the extent as has been narrated in the Bagchi Report as follows: The States have been trying to export taxes via the CST and at the same time undercutting each other in sales tax rates to attract trade and Industry. This has created a situation in which all States are fi
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l there was a requirement of bringing in GST, then why it was not brought in place before VAT rather than first moving to VAT from single point taxation and then moving from VAT to GST. The answer had been given in Bagchi Report as follows: Given this background, the only feasible option seems to be a dual system in which the VAT is levied by the two levels of government independently within the existing constitutional framework. This would be possible if the MODVAT now operating through excise tax system is made into a full-fledged manufacturers VAT and the states also adopt a destination based harmonized system of VAT in place of the chaotic sales taxes operating now. The most important remark in the Bagchi report which also shows the farsightedness of the Study Team and its Team Leader Dr Amaresh Bagchi is as follows: Although it would not be the perfect or first best solution to the problems of the present system, reform on these lines would go a long way to remove many of its ill
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Report and was discussed in detail as a possible option in the report. It would be appropriate here to refer the observation in Working Paper on GST Reforms and Intergovernmental Considerations in India for the Department of Economic Affairs Ministry of Finance, Government of India released in the month of March 2009 wherein it was stated that Buoyed by the success of the State VAT, the Centre and the States are now embarked on the design and implementation of the perfect solution alluded to in the Bagchi Report. As announced by the Empowered Committee of State Finance Ministers in November 2007, the solution is to take the form of a Dual Goods and Services Tax (GST), to be levied concurrently by both levels of government. Therefore, preference was given to VAT over GST at that given point of time. The time has moved on and VAT has been successfully implemented now and the benefits of VAT can be seen by everyone. Therefore, country which took about 60 years from completely moving from
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wever, at present there is no seamless transfer of goods and services in the country and tax is not a mere pass through during production and distribution and is added as cost in many cases during the intermediate stage. However the concept of GST suggests that the tax should stick as a cost only at final consumption stage. Therefore, the concept of VAT in Central and State Taxes prevalent in the present scenario is limited in scope as against the concept of GST. Historical Background for Implementation of GST highlighted in Extract of Union Budget Speech during the last 10 Years It has been approximately a decade since the announcement was made by the then Finance Minister Shri P Chidambaram in the budget speech for the Year 2006-07 dated 28th February 2006 for implementation of GST as follows: 155. It is my sense that there is a large consensus that the country should move towards a national level Goods and Services Tax (GST) that should be shared between the Centre and the States. I
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d progressive scheme of Taxation known as GST. This declaration was more than a whisper and laid down the first real intent for the implementation of GST. In almost all the budget speech since the year 2006-07, there has been a reference to the implementation of GST. The relevant portion of the Speech of Hon ble Finance Minister in different years is being reproduced herewith to showcase the historical background of the process and preparation for the Implementation of GST. It showcases the fact that various amendments have been incorporated in statutes to bring the present scheme of taxation in line with the principles of Goods and Services Tax. These amendments would be cross referred in subsequent articles to show case that leaving aside the political issues, the necessary changes in the tax structure are being brought in slowly but surely and the present tax structure is being brought in line with the implementation of GST. Observation about GST in the Budget Speech for the Year 20
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the Goods and Services Tax with effect from April 1, 2010. Observation about GST in the Budget Speech for the Year 2009-10 82. In the course of preparation of this budget, I have had the opportunity to interact with large number of stakeholders and receive valuable inputs. Most suggestions were for structural changes in the tax system. Tax reform, like all reforms, is a process and not an event. Therefore, I propose to pursue structural changes in direct taxes by releasing the new Direct Taxes Code within the next 45 days and in indirect taxes by accelerating the process for the smooth introduction of the Goods and Services Tax (GST) with effect from 1st April, 2010 . 85. I have been informed that the Empowered Committee of State Finance Ministers has made considerable progress in preparing the roadmap and the design of the GST. Officials from the Central Government have also been associated in this exercise. I am glad to inform the House that, through their collaborative efforts, they
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er cent, the only rate below the mean rate. There is a case for enhancing the rate on many items appearing in this list to 8 per cent, which I propose to do, with the following major exceptions: • food items; and • drugs, pharmaceuticals and medical equipment. Observation about GST in the Budget Speech for the Year 2010-11 26. On Goods and Services Tax, we have been focusing on generating a wide consensus on its design. In November, 2009 the Empowered Committee of the State Finance Ministers placed the first discussion paper on GST in the public domain. The Thirteenth Finance Commission has also made a number of significant recommendations relating to GST, which will contribute to the ongoing discussions. We are actively engaged with the Empowered Committee to finalise the structure of GST as well as the modalities of its expeditious implementation. It will be my earnest endeavour to introduce GST along with the DTC in April, 2011. 121. To achieve the roll-out of GST by April
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ce tax to 12 per cent as it was before I introduced the third stimulus package. I am not resorting to this option to maintain the growth momentum and also to bring about a convergence in the rates of tax on goods and services. I, therefore, propose to retain the rate of tax on services at 10 per cent to pave the way forward for GST. Observation about GST in the Budget Speech for the Year 2011-12 Tax Reforms 21. The introduction of the Direct Taxes Code (DTC) and the proposed Goods and Services Tax (GST) will mark a watershed. These reforms will result in moderation of rates, simplification of laws and better compliance. 23. Unlike DTC, decisions on the GST have to be taken in concert with the States with whom our dialogue has made considerable progress in the last four years. Areas of divergence have been narrowed. As a step towards the roll-out of GST, I propose to introduce the Constitution Amendment Bill in this session of Parliament. Work is also underway on drafting of the model l
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ayments. A number of States have already started accepting Electronic Tax Returns and issuing forms required for inter-state trade. 152. In view of the healthy growth in indirect taxes in 2010-11, I had the option to roll back the Central excise duty to levels prevailing in November 2008. I have chosen not to do so for two reasons. I would like to see improved business margins translated into higher investment rates. I would also like to stay my course towards GST. I have therefore decided to maintain the standard rate of Central excise duty at 10 per cent. 153. I propose certain changes in the Central Excise rate structure to prepare the ground for the transition to GST, beginning with a reduction in the number of exemptions. At present, there are about 100 items that are exempt from Central Excise as well as State VAT. In addition, there are as many as 370 items that enjoy exemption from Central Excise duty but are chargeable to VAT. I propose to withdraw the exemption on 130 of thes
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essage that honest taxpayers would be facilitated and deviants would be dealt with severely; and • Adoption of Point of Taxation rules for services which would shift the basis for tax collection from cash towards accrual basis as with Central Excise duty. 194. Many experts have argued that it will be desirable to tax services based on a small negative list, so that many untapped sectors are brought into the tax net. Such an approach will be very conducive for a nationwide GST. I propose to initiate an informed public debate on the subject to help us finalise the approach to GST. Observation about GST in the Budget Speech for the Year 2012-13 27. Similarly, the Constitution Amendment Bill, a preparatory step in the implementation of Goods and Services Tax (GST) was introduced in Parliament in March 2011 and is before the Parliamentary Standing Committee. As we await recommendations of the Committee, drafting of model legislation for Centre and State GST in concert with States is un
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• Service Tax law is complex and sometimes avoidably different from Central Excise. We need to bring the two as close as possible in the light of our eventual goal of transition to GST. I have attempted to address both these issues this year. 159. Last year, I had initiated a public debate on the desirability of moving towards taxation of services based on a negative list. In the debate that continued for the better part of the year, we received overwhelming support for this new concept. It has been perceived both as sound economics and prudent fiscal management. 160. Thus, I propose to tax all services except those in the negative list. The list comprises 17 heads and has been carefully drawn up, keeping in view the federal nature of our polity, the best international practices and our socio-economic requirements. 171. Place of Supply Rules, that will determine the location where a service shall be deemed to be provided, are being placed in public domain for stakeholders comment
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overwhelming majority – are agreed that there is need for a Constitutional amendment; there is need for State Governments and the Central Government to pass a GST law that will be drafted by the State Finance Ministers and the GST Council; and there is need for the Centre to compensate the States for loss due to the reduction in the CST rate. I hope we can take this consensus forward in the next few months and bring to this House a draft Bill on the Constitutional amendment and a draft Bill 30 on GST. Hope inspires courage. I propose to take the first decisive step by setting apart, in the Budget, a sum of ₹ 9,000 crore towards the first instalment of the balance of CST compensation. I appeal to the State Finance Ministers to realise the serious intent of the Government to introduce GST and come forward to work with the Government and bring about a transformational change in the tax structure of the country. Observation about GST in the Interim Budget Speech for the Year 2014-15
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en apprehensive about surrendering their taxation jurisdiction; others want to be adequately compensated. I have discussed the matter with the States both individually and collectively. I do hope we are able to find a solution in the course of this year and approve the legislative scheme which enables the introduction of GST. This will streamline the tax administration, avoid harassment of the business and result in higher revenue collection both for the Centre and the States. I assure all States that government will be more than fair in dealing with them. Observation about GST in the Budget Speech for the Year 2015-16 11. We are now embarked on two more game changing reforms. GST and what the Economic Survey has called the JAM Trinity – Jan Dhan, Aadhar and Mobile – to implement direct transfer of benefits. GST will put in place a stateof-the-art indirect tax system by 1st April, 2016. The JAM Trinity will allow us to transfer benefits in a leakage-proof, well-targetted and cashless m
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o levy of tax on services by both the Centre and the States, it is proposed to increase the present rate of service tax plus education cesses from 12.36% to a consolidated rate of 14%. Hassle Free Business Environment: Created a non-adversarial tax regime, ending tax terrorism; Secured the political agreement on the goods and services tax (GST), that will allow legislative passage of the constitutional amendment bill; Conclusion: From the above relevant extract of budget speech of the past decade, following conclusions can be carved out on a generalized basis: Reforms have taken place in the field of Taxation to adopt the best practices in line with the implementation of GST i.e. adoption of Negative List, Building up of IT Infrastructure, Development of GST Network, Convergence to a Common Rate under Service Tax and Central Excise, Place of Supply Rules under Service Tax etc. There have been commitments to implement GST. The commitments are yet to be fulfilled. However, the magnanimit
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