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.
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.