Congress has issued a whip to all its MPs to be present in Lok Sabha tomorrow where GST Constitutional Amendment Bill is scheduled to be taken up for passage, party leader and chief whip Jyotiraditya Scindia said today.
While Congress has extended support to the bill, the party leader said it is important for the government to identify the maximum rate of the tax in some manner.
“We are supporting Constitutional Amendment Bill. That is on the merit of it. GST is something important for the country. The party will support the bill with the amendments which the ruling party has assured us,” Scindia said.
The 66-year-old Constitution, which gives power to the Centre to levy taxes like excise, and empowers states to collect retail sales taxes, was amended though the 122nd Constitution Amendment Bill on Wednesday.
The Bill amends the Constitution to introduce the Goods and Services Tax (GST)– one nation one tax regime.
“We have issued whip to ensure presence of all the members of Lok Sabha of Congress party,” he told PTI.
He said Congress was the first to give the idea of GST.
“Our former Finance Minister P Chidambaram had in his budget speech given the concept for a nationwide uniform tax.
The government then introduced the Constitution Amendment Bill on GST in 2011 Budget session, but BJP could not build consensus for four long years.
As a result that Bill eventually lapsed.
“The NDA government later picked up the matter and got it passed last year by Lok Sabha, where it enjoys majority. As the NDA government did not believe in the essence of democracy, which is dialogue and consensus, it was pending for long.
When they realised that it was mandatory for them to have a dialogue then they redrafted it and put before Rajya Sabha which then passed it,” Scindia said.
The Upper House approved the legislation with certain official amendments, mainly to address Congress’ three objections to it, on Wednesday with 203 members voting in favour and none against, after a seven-hour debate during which a rare bonhomie was witnessed among the ruling and the opposition parties.
“We want the nation to be benefited by the GST. After all, it was Congress only that had mooted this. We would like to pass it through but would like to ensure that its benefit reaches masses and to the country as well,” the Lok Sabha member from Madhya Pradesh’s Guna said.
Congress had earlier demanded that the overall GST rate be capped at 18 per cent and additional one per cent tax for compensating the manufacturing states be scrapped. The party had also wanted a dispute resolution mechanism in the proposed law.
The Goods and Services Tax is a single indirect tax which will subsume among others most of the central and state taxes such as Value Added Tax (VAT), excise duty, service tax, central sales tax, additional customs duty and special additional duty of customs.
While manufactured consumer goods will become cheaper as the incidence of excise duty and VAT will come down from 25-26 per cent at present, the cost of services would by and large, go up from the present 15 per cent levels.
Currently, a consumer pays 25-26 per cent tax over and above the cost of production due to excise duty (peak of about 12.5 per cent) and value added tax (VAT).
While there is no indication of what the GST rate will be, experts put it between 18 and 22 per cent which will, in all likelihood, make basic goods cheaper.
Certain essential items such as raw food articles are not taxed at present and are expected to remain out of GST.
The key products that would witness price reduction under GST are luxury automobiles, processed food, FMCG and pharma products.
Processed food will continue to be taxed, but the applicable GST is likely to be lower than the current combined tax on such products. Hence, expect these to become slightly cheaper.
The services that may witness increase in cost are telecom, rent-a-cab, movies, music concerts and tickets for sports events like IPL, according to Mahesh Jaising, Partner, BMR & Associates LLP.
Tax advisory firm Nangia & Co said essential services for mass consumption may see a lower rate as they may be kept in lower tax bracket.
Investment management and insurance premiums, which attract a service tax now, may also become costlier with the higher rate of GST.
“GST is a mixed bag for the telecom sector. Customers are presently paying 15 per cent on cell phones and data card, which may see an upward movement. However, DTH players and cable companies may see a reduction in cost of services,” said Nitish Sharma, Partner (Indirect Taxation) Nangia & Co.
Economic Laws Practice Partner Rohit Jain said common man could see some price escalation in services, while the taxation of real estate sector needs some clarity.
“For a common man, the cost of services may go up, but there will be a reduction of price of goods,” Jain said, adding that land should be kept out while calculating the tax for purchase of real estate property.
The total levy paid in buying a real estate property from a builder currently is 7 per cent (5 per cent Service Tax plus about 1-2 per cent VAT).
For FMCG and pharma products, the manufacturing hubs for such products are influenced by the excise/state incentive schemes. Under GST, the manufacturing locations may be readjusted from a commercial perspective and have an impact of prices of such goods.
Goods attract an excise duty of 12.5 per cent and a VAT of 12.5-15 per cent depending on the state. Further, there are numerous cascading of taxes on account of levy of CST, input tax credit retention under the VAT laws, levy of entry tax/ Octroi/ local body tax, etc till the time the product reaches the end customer.
A combined effect of these taxes lead to an effective incidence of indirect taxes in the range of 23-25 per cent for the consumer.
“Under the GST regime, there would be a significant reduction in the overall indirect tax cost and increased credit flow for the manufacturers.
This reduction in indirect tax cost can lead to reduction in production cost and increase in base line profits, which would in turn give headroom for reducing prices for end-users,” Jaising said.
Nangia & Co’s Sharma said GST would significantly reduce logistics costs across the value chain and lead to improved margins as a result of lower transportation costs.
ICRA, in a report said, that the tax base would widen under the GST regime to cover the unorganised sector, thereby protecting the Governments’ revenues.
This could also lead to the organised sector gaining an edge in sectors which have a strong presence of unorganised players.
“The GST rate applicable to services is expected to be higher than the current service tax rate, thereby offsetting the revenue loss from organised sector manufactured goods. However, this may have an adverse impact on demand for services,” ICRA said.