New demand by States could hit GST rollout

The States have demanded that the Centre compensate them fully for any loss of revenue during the first five years of transition to the new GST tax regime. This is a setback to the government’s plan of rolling out the Goods and Services Tax (GST) by April 1, 2016.

  • While, the Centre has proposed to compensate the States, fully for the first three years, followed by three-fourths of the losses in the fourth year and half during the fifth.

Other demands by the states:

  • They want the power to levy additional sales tax over and above the GST on tobacco and tobacco products.
  • Some States want the purchase tax be not subsumed in the GST. However, if it were to be merged, then they should be awarded compensation for 15 years.
  • The States have also raised concerns over the proposed provision of an additional 1% tax over and above the GST, which the Centre offered as an assurance against apprehensions of loss of revenue.

GST:

The goods and services tax (GST) is a comprehensive value-added tax (VAT) on goods and services. It is an indirect tax levied on manufacture, sale and consumption of goods as well as services at a national level.

  • Through a tax credit mechanism, this tax is collected on value-added goods and services at each stage of sale or purchase in the supply chain.
  • The system allows the set-off of GST paid on the procurement of goods and services against the GST which is payable on the supply of goods or services. However, the end consumer bears this tax as he is the last person in the supply chain.
  • Experts say that GST is likely to improve tax collections and boost India’s economic development by breaking tax barriers between States and integrating India through a uniform tax rate.

What are the benefits of GST?

  • Under GST, the taxation burden will be divided equitably between manufacturing and services, through a lower tax rate by increasing the tax base and minimizing exemptions.
  • It is expected to help build a transparent and corruption-free tax administration. GST will be is levied only at the destination point, and not at various points (from manufacturing to retail outlets).
  • Currently, a manufacturer needs to pay tax when a finished product moves out from a factory, and it is again taxed at the retail outlet when sold.

How will it benefit the Centre and the States?

It is estimated that India will gain $15 billion a year by implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth. It will divide the tax burden equitably between manufacturing and services.

What are the benefits of GST for individuals and companies?

  • In the GST system, both Central and State taxes will be collected at the point of sale. Both components (the Central and State GST) will be charged on the manufacturing cost. This will benefit individuals as prices are likely to come down. Lower prices will lead to more consumption, thereby helping companies.

The bill on GST, which will be the biggest tax reform after 1947, was introduced in the Lok Sabha in December last year. A single rate of GST will replace central excise, state VAT, entertainment tax, octroi, entry tax, luxury tax and purchase tax on goods and services to ensure seamless transfer of goods and services.

Sources: The Hindu, gstindia.com.

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Opposition stalls GST Bill, insists on relook by panel

Several Opposition parties have raised serious concerns on a number of clauses in the Goods and Services Tax (GST) Bill. With this chances of the Constitution (122nd Amendment) Bill for introduction of Goods and Services

  • Tax (GST) clearing Parliament in the current session have dimmed.
  • Even if the Government manages to push the Bill through the Lower House, it may encounter stiff resistance in the Upper House. The government does not have a majority in the Upper House.
  • The Opposition’s strategy in the Rajya Sabha will be to force the government to accept the referring of the Bill to a Select Committee on the ground that there are substantial changes which have not been scrutinized.
  • However, the government is not willing to refere the bill to the committee. It says that if the GST Bill is sent back to the Standing Committee on Finance, it would delay the benefits to the States by another financial year as yet another deadline of April 1, 2016 would be missed.

GST:

The goods and services tax (GST) is a comprehensive value-added tax (VAT) on goods and services.

It is an indirect tax levy on manufacture, sale and consumption of goods as well as services at a national level.

  • Through a tax credit mechanism, this tax is collected on value-added goods and services at each stage of sale or purchase in the supply chain.
  • The system allows the set-off of GST paid on the procurement of goods and services against the GST which is payable on the supply of goods or services. However, the end consumer bears this tax as he is the last person in the supply chain.
  • Experts say that GST is likely to improve tax collections and boost India’s economic development by breaking tax barriers between States and integrating India through a uniform tax rate.

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What are the benefits of GST?

Under GST, the taxation burden will be divided equitably between manufacturing and services, through a lower tax rate by increasing the tax base and minimizing exemptions.

  • It is expected to help build a transparent and corruption-free tax administration. GST will be is levied only at the destination point, and not at various points (from manufacturing to retail outlets).
  • Currently, a manufacturer needs to pay tax when a finished product moves out from a factory, and it is again taxed at the retail outlet when sold.

How will it benefit the Centre and the States?

  • It is estimated that India will gain $15 billion a year by implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth. It will divide the tax burden equitably between manufacturing and services.

What are the benefits of GST for individuals and companies?

  • In the GST system, both Central and State taxes will be collected at the point of sale. Both components (the Central and State GST) will be charged on the manufacturing cost. This will benefit individuals as prices are likely to come down. Lower prices will lead to more consumption, thereby helping companies.

Why are some States against GST; will they lose money?

The governments of Madhya Pradesh, Chhattisgarh and Tamil Nadu say that the information technology systems and the administrative infrastructure will not be ready by April 2016 to implement GST. States have sought assurances that their existing revenues will be protected.

  • Some States fear that if the uniform tax rate is lower than their existing rates, it will hit their tax kitty. The government believes that dual GST will lead to better revenue collection for States.
  • However, backward and less-developed States could see a fall in tax collections. GST could see better revenue collection for some States as the consumption of goods and services will rise.
  • The central government has offered to compensate States in case of a loss in revenues.
  • The GST Bill’s passage will require a constitutional amendment, which means a two-thirds majority is required in Parliament. The Assemblies too will have to approve the Bill ahead of the April 2016 deadline .

Sources: The Hindu, gstindia.com.