1. Biggest tax reform: All you wanted to know

Biggest tax reform: All you wanted to know

The passing of the Constitution Amendment Bill, 2014, in Lok Sabha will facilitate implementation of the goods and services tax.

By: | New Delhi | Published: May 7, 2015 9:01 AM
tax reforms gst bill

The passing of the Constitution Amendment Bill, 2014, in Lok Sabha will facilitate implementation of the goods and services tax. (Thinkstock)

The passing of the Constitution Amendment Bill, 2014, in Lok Sabha will facilitate implementation of the goods and services tax. It will cut the cascading effect of several levies and allow industry to take benefit of taxes already paid thereby bringing down cost for consumers.

The journey so far

* In Budget 2007-08, the then finance minister P Chidambaram announced the implementation of GST from April 1, 2010.
* The deadline is missed as no consensus could be achieved on the Constitution Amendment Bill.
* Another deadline of April 1, 2012, is announced.
* Opposition-ruled states refuse to budge from their demands of fiscal autonomy and the second deadline is missed too.
* The BJP-ruled government in 2014 sets a new deadline of April 1, 2016.
* Bill is introduced with some changes in December 2014.
* Bill passed in the Lok Sabha on May 6, 2015,government has majority.

Consuming vs Manufacturing States

GST will be levied on buyers of goods and services, or where the service is consumed. This means big consuming states such as Uttar Pradesh, West Bengal and Kerala could get a high share of the taxes at the expense of manufacturing states such as Gujarat, Maharashtra or Tamil Nadu. To compensate for this, the bill provides for 1 percentage point extra tax on goods for at least two years. This extra revenue will go to the state from which the goods is deemed to have originated, or where it was originally manufactured.

The road ahead

*The bill has to be passed by two-thirds majority of the Rajya Sabha as well, where the government does not enjoy a majority.
*Following the passage in the Upper House it has to be ratified by 50 per cent of states.
*After ratification, the centre and states have to pass GST law, which will provide the framework for the new tax.
*A GST council will be formed which will decide on issues including tax rates, exemption list and threshold limit among other things.
*IT infrastructure has to be readied before April 1, 2016, for making the new regime operational.

Contentious points

Instead of the proposed one per cent additional levy for two years, manufacturing states want two per cent additional levy beyond two years.

Some states are worried over the reduction of the pool size due to additional 1% promised to manufacturing states.

Few states like West Bengal want tobacco to be outside the purview of GST.

Original concerns like keeping purchase tax and entry tax in lieu of octroi outside the GST, taxation of petroleum, period of compensation for probable losses on account of implementation of the new indirect tax regime among others, remain.

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