What is GST (Goods and Services Tax) ???

Centre has tabled the much-hyped Goods and Services Tax (GST) Bill in the Lok Sabha.

The legislation seeks to create a single and unified tax regime in the country putting an end to complicated system of taxation where multiple agencies levy tax on the same item/service one after another.

The Bill - a constitutional amendment (122nd) - is believed to boost the economy by placing a business-friendly economic structure.

Being a constitutional amendment, it needs two-third majority in Parliament in addition to ratification by over half of all the state legislatures.

Benefits

• It will create a single and unified economy in which taxes will be levied on a national basis - some by states, rest by centre in a clearly defined manner.
• This will make doing business easier in the country - by improving transparency and efficiency.
• This is likely to improve tax collections.
• GST will be is levied only at the destination point, and not at various points (from manufacturing to retail outlets).

If it gets passed - the new regime will take effect from April 2016.

What kind of taxes it will replace?

Central excise, state VAT, entertainment tax, octroi, entry tax, luxury tax and purchase tax on goods and services.

Exception

Liquor has been kept totally out of the system whereas inclusion of petroleum products like petrol and diesel will have transitional arrangements.

Who will govern the new structure?

·         GST Council - a statutory body - has been created with one-third representation from centre while the rest two-third come from the states.

·         Any decisions regarding the GST structure will require 3/4 majority - giving none of the two stakeholders absolute power to tinker with the system.

·         The council will decide the items/services on which the tax will apply for any given period.

Key Points

·         The legislation has been in the pipeline since the days of UPA-2 (2011).

·         States - fearing loss of revenue - were against GST.

·         To speed up the implementation - Centre has had to concede many points to state in lieu of their support.

·         Centre has agreed to give compensation to such states for a period of five years - in the following way - 100 per cent for first three years, 75 per cent in the fourth, going down to 50 per cent for the fifth one.

·         Petroleum products will be levied at zero rate - meaning that the states will continue to levy VAT while Centre will exhort excise duty for initial few (5?) years.

·         The states where goods originate can levy 1 per cent additional tax over GST to make up for any revenue loss for the first two years.

Will it lead to price rise?

On the contrary it may do the opposite thanks to the expected decline in tax-corruption.

However, the system needs some time to settle for the prices to stabilise.

#thnx ELENA