Finance Minister Arun Jaitley on Monday introduced four GST bills in Lok Sabha that provide for a maximum tax rate of 40 per cent, an anti-profiteering body and arrests for evading taxes in a bid to overhaul India’s fragmented indirect tax system.
All the four bills will be taken up together in Lok Sabha for discussion on Wednesday.
With this, the roll out of Goods and Service Tax (GST) – the biggest tax reform since independence – entered the last lap. Its passage by Parliament will pave the way for replacing the current patchwork of national, state and local levies with a single, unified value added tax system and integrating India as one market.
From providing single registration to manufacturers and suppliers of goods and services to self-assessment of tax, the new tax regime provides easier administration and some degree of self policing — a buyer can only claim a refund if the seller issues an invoice.
Besides creating an anti-profiteering authority that will see the benefit of lower taxes is passed on to consumers, the new legislations provide for setting up a Consumer Welfare Fund.
The Central Goods and Service Tax or CGST bill
Jaitley introduced the Central Goods and Service Tax or CGST bill which will amalgamate all the indirect central government levies like sales tax, service tax, excise duty, additional customs duty (Countervailing Duty), special additional duty of customs, surcharges and cesses.
CGST provides for a maximum tax of 20 per cent. A similar tax will be levied by states through a separate State-GST law which is not part of the legislations introduced in the Lok Sabha today but would have to be brought by all states in their assemblies.
Actual rates would, however, be a four-tier tax structure of 5, 12, 18 and 28 per cent as approved by the GST Council. The peak rate of 40 per cent is only an enabling provision for financial emergencies.
Union Territory GST bill
A Union Territory GST bill will take care of taxation in UTs of Chandigarh, Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli and Daman and Diu.
Bill on integrated-GST
A bill on Integrated-GST — to be levied and collected by the Centre on inter-state supply of goods and services — was also introduced in the Lok Sabha.
The IGST law provides for a maximum tax of 40 per cent.
GST (Compensation to States) Bill, 2017
Jaitley also introduced a fourth legislation called GST (Compensation to States) Bill, 2017 that provides for a mechanism for making good any loss of revenue of states from introduction of GST in first five years of rollout.
CGST and SGST will be mirror legislations but the new indirect tax regime would not extend to Jammu and Kashmir even though it will get compensation out of the non-lapsable fund being created.
The CGST bill also provides for e-commerce companies to collect tax at source at a rate not exceeding 1 per cent of net value of taxable supplies, out of payments to suppliers supplying goods or services through their portals.
To protect small businesses, the CGST provides for a tax of no more than 1 per cent of turnover for manufacturers with annual turnover of up to Rs 50 lakh. A 2.5 per cent tax is prescribed for suppliers.
As anti-profiteering measure, it provides for constituting an Authority to examine whether input tax credits availed by any registered taxable person, or the reduction in the price on account of any reduction in the tax rate, have actually resulted in a commensurate reduction in the price of the said goods and/or services supplied by him.
The law provides for arrest, ordered by no less than a Tax Commissioner, in case of suppression of any transaction or evading taxes. A person convicted is punishable by up to 5 years of imprisonment and/or fine.
The Compensation Law provides for levy of cess on top of the peak rate of approved tax (28 per cent presently) on paan masala, tobacco, aerated waters, luxury cars and coal to create a non-lapsable fund for compensating states.
Such cess has been capped at 135 per cent in case of pan masala, Rs 4,170 per thousand cigarettes sticks or 290 per cent ad valorem, Rs 400 per tonne on coal and 15 per cent on aerated water and luxury cars.
The compensation will be paid bi-monthly and the amount due would be calculated after considering a 14 per cent growth rate in taxes over the base year of 2015-16.
Touted as the biggest taxation reform since independence, GST is expected to boost GDP growth by up to 2 per cent. The government proposes to roll out GST by July 1.
“The Integrated Goods and Services Tax bill provides for … tax on all inter-state supplies of goods and services or both except supply of alcoholic liquor for human consumption at a rate to be notified not exceeding 40 per cent, as recommended by the GST Council,” said the statements of objects and reasons of the IGST bill.
The 40 per cent would be apportioned equally between the Centre and the states.
Opposition protest in Parliament
As Jaitley introduced the bills in Lok Sabha, opposition parties, including Congress and TMC, protested saying it was not listed in today’s agenda for the House.
Minister of State for Parliamentary Affairs SS Ahluwalia said the bills were uploaded on the government website on the midnight of Friday.
PwC India Indirect Tax Leader Pratik Jain said “a few important changes have been proposed in the GST bills which include zero rating of supplies to SEZs, introduction of ‘duty drawback’ and exclusion of J&K from the definition of ‘India’ for GST purposes”.
Source : TOI