GOODS AND SERVICES TAX: THE ROAD AHEAD

The Goods and Services Tax (GST) is going to replace all the existing State and Central indirect taxes with one single levy. Currently the States collect VAT, Sales Tax, Luxury Tax, Entertainment Tax and many other taxes. This is expected to unify the tax rates across all States, converting the country into one unified market where any trader can buy or sell goods and services from anywhere and still pay the same cost. This will not only boost the businesses but also prove beneficial to consumers who will see the prices of commodities coming down. It will also make Indian goods and services more competitive globally which can be leveraged by Indian businesses to their advantage.

The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, will again have to go to the LokSabha, since the Bill that had been passed on 6, 2015 in LokSabha underwent amendments to reach consensus.

Among the first tasks ahead is the drafting of the Central and State GST laws that will again be required to be passed in the Parliament and ratified by more than 50% of the State Legislatures.

Another issue is whether the GST legislation should be a money bill or a financial bill. If it is proposed to be a money bill thenRajyaSabha can only discuss and not vote on it.

Following a presidential consent, the amendment will take effect. These formalities apart, the parliament will have to pass relevant bills for a Central GST and an integrated GST, while the States will have to enact their own legislations for a State GST. This is because the GST regime will involve the imposition of Central and State levies at identical rates.

Adapting to a particular cap rate will play a vital role; otherwise the GST rate can easily lead to an increase in India’s income inequality. Since the proposed rate itself has become a matter of hot debate and the variation among the various recommended rates by experts and stakeholders range from around 15.5 per cent to as high as 26 per cent.

States also have to be eased with some concrete proposals on the ground that their sovereign authority to impose taxes on goods will not be diluted in any manner by the unified tax regime, and provisions will be made by the Centre when they are in dire needs during emergencies.

As also for resolution of disputes, the role of the GST Council, which will be chaired by the Union Finance Minister, has to be clearly defined. This is another issue over which consensus is still elusive.

The necessary Information Technology infrastructure, too, has to be set up. Towards this, a non-Government private limited company has been constituted “Goods and Services Tax Network” (gstn.org).

The major alarming area for the States will be to prevent revenue loss at any cost. In this regard, the empowered committee of finance ministers uses a concept Revenue Neutral Rate (RNR). RNR is the uniform rate which when applied will leave all the States with the same revenue as before. Therefore, no State will lose by accepting GST. In order to nullify the fear of States, RNR might be loaded with every possible existing tax (excise duty, octroi etc.). This is going to escalate RNR and hence it might increase inflation in the economy and job losses in the unorganized sector.

Mayan Singh Raghuvanshi

Senior Associate

The Indian Lawyer