As we all know that the govt. is keen on reforming the indirect tax regime in the country. Now why do I use the term "reform". I use it because it is going to completely change the way Indirect taxes are levied in our country. It is going to smoothen the existing cumbersome indirect tax regime of our country. Multiple VAT laws, exemptions within the tax structure, additional levies have all made the existing structure very complex. With the implementation of GST the government aims to do away with different taxes and bring about a consumption based single point taxation. Implement of GST will bring about a lot of changes.
We will not have to come across a situation where trucks are waiting outside to enter the city. There will be a seamless transfer of goods and services. The country with such a big population will change into a single market. Not only this, under the GST States will be empowered to collect all those taxes which are presently being levied and collected by the Union only. The Constitution of India, at present do not provide for any "concurrent" taxation powers to the state as well as the centre.
Therefore an amendment in the constitution is required for conferring simultaneous powers on the parliament as well as the state legislatures including every Union Territory with legislature to make laws for levying goods and services tax on every transaction of supply of goods or services or both. The constitution amendment bill was introduced in the Lok Sabha on 19th December 2014. It was passed in the Lok Sabha on 6th May 2015. The bill aims to amend various articles in the constitution and insert even some new articles to pave way for the GST. The amendment bill under article 246A aims to empower legislature of every state to make laws with respect to goods and services presently imposed only by the Union.
Under article 269A it provides that GST on supply of goods and services taking place in the course of inter state trade will be levied and collected by the Union and apportioned as per the recommendations of the GST council. The most important provision in the Constitutional Amendment bill i.e the 122nd amendment is empowering the President under article 279A to set up a GST council with 60 days of the commencement of the 122nd Constitution amendment act. The Union Finance minister will be the Chairman of the GST council.
The Union minister of State in charge of revenue/finance along with minister of finance nominated by each state government will be the members of the council. The quorum for the meetings of the council will be one half of the total members. Any decision taken by the council will have to be passed by atleast 3/4 or 75% of the members present. Therefore any resolution passed will require the integration of both the centre and the states.
This division of power has been done very intelligently as it empowers the states in the council and at the same time do not dilute the stake of the centre thereby keeping alive the spirit of a federal republic state. The council will make recommendation on various issues like what will be the revenue neutral rate to be adopted, the threshold limit for GST, taxes to be subsumed in the GST and such other issues. Of all issues the major concern is the revenue neutral rate to be adopted. There had been speculations about it to be as high as 27%.
But the Union Finance Minister has discarded such speculations. The revenue neutral rate is expected to be around 20%. Another issue before the council is how will the revenue loss of the municipalities will be provided for. This concern has been raised vehemently by the states where the municipality is a very large body like in Maharashtra & Tamilnadu. How will the loss of entry tax be provided for in such states.
This will be a major issue for the GST council. Another issue that the council will have to decide upon is how the credits available with the businessmen in the present laws will be carried forward to the GST. Further the GST council will have to decide upon the threshold limit of turnover below which goods and services may be exempted from the GST. Along with principles of levy, place of supply rules, special provisions with respect to North Eastern states along with Jammu & Kashmir also need to be decided by the council. Clause 19 of the 122nd amendment to the constitution provides for compensation to the states who suffer loss due to the GST for a period of 5 years. The compensation is to be given as per the recommendations of the GST council.
Although potable liquor has been kept out (presently being a state subject) from the purview of GST, keeping out of other items like petroleum crude, natural gas, aviation turbine etc will be decided by the council. It also has to make sure that it doesn?t defeat the very principle of GST. In short there will be several issue to be dealt with that will be arising after the enactment of the amendment bill. There is a great onus on the council to deal with such issues and set up a model GST in the country.