GST In India
Taxes are the basic source of revenue for the Government. Revenue raised from the taxes are utilized for meeting the expense of Government like, provision of education, health, infrastructure facilities such as roads, dams etc. Tax is the financial charge imposed by the Government on income, commodity or activity.
Government imposes two types of taxes namely Direct taxes and Indirect taxes. Under direct taxes, person who pays the tax bears the burden of it e.g. Income tax, Wealth Tax etc. whereas in Indirect taxes the person who pays the tax, shifts the burden on the person who consumes the goods or services e.g. Service tax, Value Added Tax, Excise duty etc.
General Scheme of Indirect Taxation in India
Indirect tax is a type of tax collected by the government from an intermediary such as manufacturer or retailer. The eventual burden of the tax falls on to consumers who buy goods and services from the intermediary, as the intermediary applies indirect taxes on the product in the form of Value Added Tax (VAT), service tax, sales tax etc. Indirect taxes are called so because they are collected indirectly from consumers by the government through intermediaries, who are the first payers of the tax to the government. Indirect taxes include taxes such as sales tax, service, tax, VAT etc. Indirect taxes are levied on goods and services rather than individuals.
Introduction of GST
The idea of moving towards the Goods and Service Tax (herein after: “GST”) was first mooted by the then Union Finance Minister in his Budget for 2006-07. Initially, it was proposed that GST would be introduced from 1st April, 2010. It is in this perspective, the Central government had entrusted Dr.Vijay Kelkar, Chairman of 13th Finance Commission to suggest a rational, scientific and modern but unified system of taxation in tune with developed nations form the base behind the introduction of Goods and Service Tax (GST) in India. Although there were many hurdles to be crossed before the implementation of GST the Central government reiterated its commitment towards the adoption of a ‘flawless’ GST for the survival of the India’s economy in the face of increasing international competition consequent to globalization and liberalization.
The replacement of the Central excise duty of the government of India by Central Value Added Tax (CENVAT) and sales tax system of the State governments by the VAT marked a major mile stone in the reform process of indirect taxes in India. It addressed the cascading effect under the erstwhile system by giving set-off for tax paid on inputs as well as tax paid on previous purchases and resulted in a major simplification of the rate structure and broadening of the tax base. But both the CENVAT and the State VAT have certain incompleteness. Though a number of initiatives by the various machineries at the Centre, the present taxation regime is marked as cumbersome, complicated and unfriendly.
Hence the introduction of Constitution (One Hundred and First) Amendment Act, 2016
To address all these and other issues, the Constitution (122nd Amendment) Bill was introduced in the 16th Lok Sabha on 19.12.2014. The Bill provides for a levy of GST on supply of all goods or services. The Constitution Amendment Bill was earlier passed by the Lok Sabha in May, 2015. The Bill was referred to the Select Committee (of 21 members led by Sh. Bhupendra Yadav, Hon’ble MP) of Rajya Sabha on 12.05.2015. The Select Committee had submitted its Report on the Bill on 22.07.2015. The Bill with certain amendments has finally been passed in the Rajya Sabha and thereafter by Lok Sabha in August, 2016. Further the bill had been ratified by required number of States (more than 50% of the states have ratified the GST Bill) and has received assent of the President on 8th September, 2016 and has since then been enacted as Constitution (101st Amendment) Act, 2016.
The power to levy GST is derived from Article 246A of the Constitution, which was introduced by the Constitution (101st Amendment) Act, 2016 which confers concurrent powers to both parliament and state legislatures to make laws with respect to GST. However,-clause 2 of Article 246A read with Article 269A provides exclusive power to the Parliament to legislate with respect to inter-state trade or commerce.
What is GST?
Goods and Service Tax also known as GST, is a destination based tax on consumption of goods and services. It is proposed to be levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as set off. In a nutshell, only value addition will be taxed and burden of tax is to be borne by the final consumer. The concept of destination based tax on consumption means that the tax would accrue to the taxing authority which has jurisdiction over the place of consumption which is also termed as place of supply.
GST applies to all supplies of goods / services (as against manufacture, sale or provision of service) made for a consideration except –
- a. Exempted goods / services – common list for CGST & SGST
- b. Goods / services outside the purview of GST
- c. Transactions below threshold limits
It would be a dual GST with the Centre and States simultaneously levying it on a common tax base. The GST to be levied by the Centre on intra-State supply of goods and / or services would be called the Central GST (CGST) and that to be levied by the States would be called the State GST (SGST). Similarly Integrated GST (IGST) will be levied and administered by Centre on every inter-state supply of goods and services. Centre will levy and administer CGST & IGST while respective states will levy and administer SGST. A particular transaction of goods and services would be taxed simultaneously under Central GST (CGST) and State GST (SGST) in the sense that the Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further, both would be levied on the same price or value unlike State VAT which is levied on the value of the goods inclusive of CENVAT. While the location of the supplier and the recipient within the country is immaterial for the purpose of CGST, SGST would be chargeable only when the supplier and the recipient are both located within the State.
Existing Taxes to be subsumed under GST
Taxes currently levied and collected by the Centre, but to be subsumed under the GST are:
- a. Central Excise duty
- b. Duties of Excise (Medicinal and Toilet Preparations)
- c. Additional Duties of Excise (Goods of Special Importance)
- d. Additional Duties of Excise (Textiles and Textile Products)
- e. Additional Duties of Customs (commonly known as CVD)
- f. Special Additional Duty of Customs (SAD)
- g. Service Tax
- h. Central Surcharges and Cesses so far as they relate to supply of goods and services
State taxes to be subsumed under the GST are:
- a. State VAT
- b. Central Sales Tax
- c. Luxury Tax
- d. Entry Tax (all forms)
- e. Entertainment and Amusement Tax (except when levied by the local bodies)
- f. Taxes on advertisements
- g. Purchase Tax
- h. Taxes on lotteries, betting and gambling
- i. State Surcharges and Cesses so far as they relate to supply of goods and services