May 31st, 2017
The Good and Services Tax (GST) is all set to be rolled out from July 1 after the centre and the states arrive at a middle ground on the contentious surrounding sharing of administrative powers.
Till now, twenty one states and Union Territory Puducherry have passed the state GST Acts.
In 2011, the Congress-led UPA government introduced the Bill in the Lok Sabha and had set the rollout date for the new indirect tax regime as April 2012. Incidentally, BJP-ruled states, including PM Modi’s Gujarat had red flagged the reform. In the last two years, the opposition has never failed to mention this during GST negotiations.
As Congress claims credit over the country’s single biggest tax reform, let us have a look at the difference between the 2011 GST Bill and the current (2014) Bill.
The 2011 Bill defined GST as any tax on the supply of good and services, apart from taxes on the supply of petroleum crude, high-speed diesel, motor spirit (petrol), natural gas, aviation turbine fuel, and alcoholic liquor for human consumption.
The 2014 Bill has the same definition for GST, however, it excludes the tax on supply of alcoholic liquor for human consumption. Further, the Centre will impose an additional levy on tobacco.
Provisions in the 2011 Bill that have been deleted from the 2014 Bill
Good and Services Tax Dispute Settlement Authority: The 2011 Bill provided for the creation of a Good and Services Tax Dispute Settlement Authority to arbitrate disputes between the central and state governments. But it was believed that this will negatively impact the tax system by affecting its harmonised structure and also cause loss of revenue. The 2014 Bill has deleted the provision for the creation of such a dispute settlement authority.
Restrictions on states in the taxation of special goods: In the previous Bill, the Constitution had imposed restrictions on states in the taxation of goods that were declared under law by the Parliament – of special importance in inter-state trade or commerce. This provision has been deleted from the current Bill.
Article 366: The 2011 Bill had removed the goods listed under Article 366 (related to the sale or purchase of goods) from its ambit. It further specified that this provision was not to apply to a state law which has already imposed GST. Both these provisions have been removed from the 2014 Bill.
Entry tax of goods into a local area for use or sale only to the extent levied by a Panchayat or Municipality: This was allowed in the 2011 Bill, but has been deleted from the current Bill. The GST Committee justified this move by saying that states must be empowered to collect entry tax for distribution to local bodies instead of leaving the collection power in the hands of different local bodies.
GST Council: Functions under the 2011 Bill – recommendations on taxes to be subsumed, exempted goods, threshold limits, rates. Decisions to be taken by consensus. Contrastingly, the functions of the 2014 GST Council, in addition to this, also includes model GST laws, principles of levy and place of supply, and apportionment of IGST. For decisions, Standing Committee recommendations will be incorporated.
Additions made to the current GST Bill
Additional Tax (in interstate trade): Tax (up to 1%) on the supply of goods in interstate trade will be given to supply states, for two years or more. However, the Congress demands withdrawal of the 1% tax on manufacturing and providing for an independent dispute redress mechanism.
Compensation to states: Parliament may provide for compensation to states for a maximum of five years.
GST rate: The BJP government has raised the cap on GST tax from UPA’s recommendation of 18% to 28%, dividing the tax payable into four – 5%, 12%, 18% and 28%.
Four different GST bills: The Lok Sabha on April had approved the four bills — Cental GST Bill, Integrated GST Bill, Union Territories GST bill, and Compensation law.
After the Congress government had introduced the Constitution (115th Amendment ) Bill, 2011 or GST Bill, the Standing Committee had made various recommendations to it. However, in the end, the party was unable to convert it into a law even though it tried to extend the session by a few days to push the Bill through the opposition.
The current GST Council has urged states to complete the legislative work by the end of May and the Bill is most likely to become a law from July 1.
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