The revised version of the Constitution (115th Amendment) Bill, meant to pave way for the Goods and Services Tax (GST), proposes the abolition of entry taxes and octroi levied by state governments and municipalities irrespective of when the unified indirect tax regime is ushered in.
The revised Bill, which seeks to include petroleum taxes in GST, also has implications for taxation of intangibles such as intellectual property rights and franchises.
This is because it seeks to define services as ?anything other than goods?, contrary to judicial pronouncements that have held sale of intangibles as sale of goods.
Goods are described in the law, but there is confusion over definition of services. The new definition could set at rest the ongoing dispute over some items attracting both service tax and value-added tax (VAT) due to ambiguity over the classification.
According to sources, the Bill, revised after considering the comments of the Parliamentary Standing Committee, also ensures that no decision is taken by the proposed GST Council without the Centre?s consent.
The council is supposed to be a powerful body that would determine the rate fixation/revision and grant of exemptions, among other things.
One of the major modifications is the new clause that any existing provision in any central or state law on taxation of goods or services that is inconsistent with the provisions of the Constitution as amended by this Bill shall continue to be in force after the amendment only for a maximum period of one year if not abolished earlier by a legislature or an authority.
Experts said that since the revised Bill proposes to take away the power of states and municipalities to levy entry taxes and octroi, respectively, these will have a maximum life of a year after the Constitution is amended.
However, the consolation offered by the government of allowing states to add a small margin to the revenue-neutral GST rate (RNR) to offset revenue losses from removal of entry taxes and Octroi will not take effect until the implementation of the new tax regime.
The implementation of GST, it is believed, could take longer than a year considering the slow pace of consensus-building on thorny issues.
Once the Constitution is amended to give the Centre and states concurrent powers to tax goods and services, the implementation of GST requires enactment of three separate laws to deal with the central component of GST ? the CGST, the state component called the SGST and a third law to deal with inter-state sale of goods and services called IGST, which could take longer than a year, said a source privy to the discussions between the centre and the states.
The definition of services as anything other than goods is another major revision in the proposed Bill. ?There is currently a debate on whether intangibles should attract service tax or VAT (treating it as goods) and, in many instances, it attracts both. One example is franchises ? the right to use another firm’s business model or proprietary knowledge. An amendment to this effect will give rise to the question whether intangibles shall henceforth be considered only as services,? said Prashant Deshpande, senior director, Deloitte in India.
While petroleum taxes, which account for the chunk of tax revenues for the Centre and states, will be subsumed in the GST, there will be a specific non-VAT-able tax that states can levy on these goods over and above the GST.
The revised Bill, to be discussed at the next meeting of the Empowered Committee of State Finance Ministers, also has provisions to ensure that without the Centre’s consent, no decision can be taken at the GST Council even if all other states come together.
It requires every decision of the Council to be taken by a majority of not less than three-fourth of the weighted votes (75%) of the members present and voting. With the central government carrying a weight of one-third (33.3%) and all states together accounting for two-thirds (66.6%), the Centre’s consent is essential for passing any resolution.
The Bill restricts the power of the proposed GST Council to recommend any special provisions, say an exemption from tax to a state.
It limits the Council’s power to recommend a special rate of tax only to a specified period to raise additional resources during any natural calamity or disaster. It also specifies the power to recommend special provisions to only nine states ? Assam, J&K, Arunachal Pradesh, Manipur , Mizoram, Nagaland, Meghalaya, Sikkim and Tripura.
