The Goods and Services Tax Bill or GST Bill, officially known as The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, proposes a national Value added Tax to be implemented in India from June 2016.
Goods and Services Tax" would be a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India, to replace taxes levied by the Central and State governments. Goods and services tax would be levied and collected at each stage of sale or purchase of goods or services based on the input tax credit method. This method allows GST-registered businesses to claim tax credit to the value of GST they paid on purchase of goods or services as part of their normal commercial activity. Taxable goods and services are not distinguished from one another and are taxed at a single rate in a supply chain till the goods or services reach the consumer. Administrative responsibility would generally rest with a single authority to levy tax on goods and services. Exports would be zero-rated and imports would be levied the same taxes as domestic goods and services adhering to the destination principle.
The introduction of Goods and Services Tax (GST) would be a significant step in the reform of indirect taxation in India. Amalgamating several Central and State taxes into a single tax would mitigate cascading or double taxation, facilitating a common national market. The simplicity of the tax should lead to easier administration and enforcement.From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%
Framework of the GST will replace indirect taxes
The GST will have a 'dual' structure, which means it will have two components- the Central GST and the State GST. They will both have separate powers to legislate and administer their respective taxes. Thus equally empowering both.
Taxes such as excise duty, service, central sales tax, VAT ( value added tax), entry tax or octroi will all be subsumed by the GST under a single umbrella.
With passing of the GST bill, we can expect a climate of improved tax compliance.
Thus, the GST will basically have only three kinds of taxes, Central, State and another called the integrated GST to tackle inter-state transactions..
The impact and relevance of the GST bill
The GST offers a solution to the multinationals as it breaks down the indirect tax structure into one single tax payable by the companies.
Although the states have feared loss of fiscal powers, the Constitutional amendment bill has promised to solve this by giving compensation packages for three years for any kind of revenue loss.
The bill has proposed to have GST council wherein all union and state minister in charge of finance will be on a equal footing. It will also have a Dispute Settlement authority to mitigate the tensions between the centre and state smoothly.
One main contention for the state in the GST is the inclusion of petroleum products. The current consensus on this is that the states will continue to levy sales tax/VAT on these with the exception of imports and inter-state trade.