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GST Law framework, 2016 released by Finance Ministry Goods and Services Tax ("GST") also known as Harmonized Sales Tax, VAT or General Sales Tax in many countries is a tax applicable on most supplies of goods and services. In India, GST is a (proposed) tax on value addition of supplies of goods and services with comprehensive coverage by including minimum exemptions. The proposed tax aims to reduce the tax cascading without breaking the chain of credit. The fundamental reason for adopting the GST framework in India is not only to get rid of current patchwork of indirect taxes that are partial and suffer from infirmities, mainly exemptions and multiple rates but also to improve tax compliance. The introduction of Goods and Services Tax (GST) would be a significant step in the reform of indirect taxation in India. Merging several Central and State taxes into a single tax would lessen falling or twofold taxation, enabling a common national market leading to easier administration and enforcement. From the buyer 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%. The Constitution (One Hundred and Twenty Second Amendment) Bill, 2014 was earlier introduced in the Lok Sabha on December 19, 2014 by the Minister of Finance Mr. Arun Jaitley. The Bill seeks to amend the Constitution to introduce the Goods and Services tax (GST). Accordingly, the GST incorporates various central indirect taxes including the Central Excise Duty, Countervailing Duty, Service Tax, etc. It also includes state value added tax, octroi and entry tax, luxury tax, etc. The Finance Ministry has recently on its website released the draft Model GST LAW laying the text of the Goods and Service Tax Act, 2016 for public feedback. Key features of the GST Model Law and GST Framework:
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Concurrent powers for GST between the state and centre: The Bill adds a new Article in the Constitution to give the central and state governments the concurrent power to make laws on the taxation of goods and services.
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Integrated GST (IGST): However, only the centre may levy and collect GST on supplies in the course of inter-state trade or commerce. The tax collected would be divided between the centre and the states in a manner to be provided by Parliament, by law, on the recommendations of the GST Council.
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GST Council: The President must constitute a Goods and Services Tax Council within sixty days of this Act coming into force. The GST Council aim to develop a harmonized national market of goods and services. o Composition of the GST Council: The GST Council is to consist of the following three members: (i) the Union Finance Minister (as Chairman), (ii) the Union Minister of State in charge of Revenue or Finance, and (iii) the Minister in charge of Finance or Taxation or any
other, nominated by each state government. o Functions of the GST Council: These include making recommendations on: (i) taxes, cess, and surcharges levied by the center, states and local bodies which may be subsumed in the GST; (ii) goods and services which may be subjected to or exempted from GST; (iii) model GST laws, principles of levy, apportionment of IGST and principles that govern the place of supply; (iv) the threshold limit of turnover below which goods and services may be exempted from GST; (v) rates including floor rates with bands of GST; (vi) special rates to raise additional resources during any natural calamity; (vii) special provision with respect to Arunachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and (viii) any other matters. o Resolution of disputes: : The GST Council may decide upon the modalities for the resolution of disputes arising out of its recommendations. o Restrictions on imposition of tax: The Constitution imposes certain restrictions on states on the imposition of tax on the sale or purchase of goods. The Bill amends this provision to restrict the imposition of tax on the supply of goods and services and not on its sale. o Additional Tax on supply of goods: An additional tax (not to exceed 1%) on the supply of goods in the course of inter-state trade or commerce would be levied and collected by the centre. Such additional tax shall be assigned to the states for two years, or as recommended by the GST Council. o Compensation to states: Parliament may, by law, provide for compensation to states for revenue losses arising out of the implementation of the GST, on the GST Council's recommendations. This would be up to a five year period. o Goods exempt: Alcoholic liquor for human consumption is exempted from the purview of the GST. Further, the GST Council is to decide when GST would be levied on: (i) petroleum crude, (ii) high speed diesel, (iii) motor spirit (petrol), (iv) natural gas, and (v) aviation turbine fuel
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National Goods and Services Appellate Tribunal: Formed by the government on recommendation of the GST Council acts as an appellate tribunal, the appeals from adjudicating authority lie here.
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Threshold for Taxation: Individuals and entities with an annual turnover of Rs 10 lakh or more could soon be under goods and service tax laws, widening the tax base of the government. According to the proposal of the draft laws, in the northeastern states the threshold is even lower at Rs 5 lakh.
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Collection of Taxes at source: The draft laws also propose collection of taxes at source for ecommerce companies, including aggregators.
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Alteration of Definition of services: "services" means anything other than goods; include intangible property and actionable claim but does not include money alongwith intangibles such as software and work contracts. WHAT NEXT?
With the empowered GST committee of state finance ministers making headway in Kolkata, the road ahead becomes clearer:
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In the Parliament: The Constitution Amendment Bill for the Goods and Services Tax (GST)
will be taken up by the Rajya Sabha in the Monsoon session. The Lok Sabha has already cleared it.
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In the states: At least 40% of the state legislatures have to ratify the Bill. All states expect Tamil Nadu are on board, claimed Finance Minister
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For the public: The draft Model GST law is in the public domain for feedback To be a law: The Rajya Sabha has to pass it. The states have to pass their own GST laws. A
formal notification is gazette is required.
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Key hurdles: 1% per cent inter-state additional levy: Opposition wants it abolished. BJP held
out for some time but Jaitley said on 14th June that the Centre would be flexible on this
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Cap on GST rate in the Bill: Opposition wants the cap to be a part of the Bill. Govt feels it should not be in the Bill, as the Constitution would need to be amended for any future change
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Dispute resolution: States seeking authority to assess and resolve cases below Rs 1.5 crore, taking majority of the service tax cases from the Centre. Meeting likely in July, 2016 to discuss this.
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Current rollout target: April 1, 2017
GST is likely to bring in a uniform experience as well as simplicity to existing herculean system under the flawless GST model. Consumption will be taxed on the same principles on which the income is taxed. i.e. irrespective of source and use. To download your copy of the Model GST Law please visit our website: www.NCLT.in download link page http://www.nclt.in/manager/uploads/1465985268-gst%20model%20bill.pdf Knowledge Partner: Veda Legal, Advocates & Solicitors, New Delhi
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