SALIENT FEATURES /FREQUENTLY ASKED QUESTIONS- GOODS AND SERVICE TAX (GST)

LOK SABHA has passed the bill to pave the way for the introduction of the goods and services tax (GST), a levy that was to have been in place five years ago. Here we take a look at what this much-anticipated indirect tax reform is all about and why you should care.

The following are the Salient features/Common Questions /Queries which we have attempted to answer:

1. WHAT IS GST?

It is a tax levied when a consumer buys goods or services. This is how what consumption is taxed in most developed countries.

2. WHAT IS ARTICLE 246A AND HOW WILL THE POWER TRANSFER TO STATES TAKE PLACE?

The bill introduces a new article that says Parliament, and, subject to some conditions, the legislature of every state will have power to make laws with respect to goods and services tax imposed by the Union or the state.

3. WHAT ALL TAXES WILL THE GST REPLACE AS THE SINGLE UMBRELLA TAX.

GST would subsume the following:

Central Taxes

a) CENVAT;
b) service tax;
c) central excise duty;
d) additional excise duties;
e) excise duty levied under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955;
f) additional customs duty (countervailing duty or CVD);
g) special additional duty of customs (SAD);
h) central surcharges and cesses;

State Taxes

a) state VAT;
b) state sales tax;
c) entertainment tax not levied by local bodies;
d) luxury tax;
e) taxes on lottery, betting, and gambling;
f) tax on advertisements;
g) state cesses and surcharges related to supply of goods and services;
h) entry tax not levied by local bodies.

4. IS THERE ANY AUTHORITY CONSTITUTED UNDER THE GST

The President would be required to constitute a Goods and Services Tax Council within sixty days of the Act coming into force. The GST Council shall aim to develop a harmonized national market of goods and services.

However, as contemplated earlier, the new Bill has deleted the provisions that creates a Goods and Services Tax Dispute Settlement Authority.

5. HOW WILL THE STATES RECOVER LOSS OF REVENUE

The bill allows for compensation for revenue loss to states for a period of 5 years.

6. TO WHOM DOES GST APPLY

GST will be levied on buyers of goods and services, or where the service is consumed. This means big consumer states such as Uttar Pradesh, West Bengal and Kerala will get a high share of the taxes. To compensate for this, manufacturing states such as Tamil Nadu, Maharashtra and Gujarat fear that they will lose out on revenues. The bill provides for 1 percentage point extra tax on goods for at least two years. This extra revenue will go to the state from which the goods originated, or where it was manufactured.

7. WHO ALL ARE EXEMPTED FROM GST

As per the proposal the following are exempt from GST
a) Supply of Alcoholic Liquor for human Consumption

The GST Council shall however revisit whether the exemption is to be extended to the following:

(i) petroleum crude
(ii) high speed diesel;
(iii) motor spirit (petrol);
(iv) natural gas;
(v) aviation turbine

8. IS THERE ANY RESTRICTIONS ON IMPOSITION OF TAX ON SALE OF GOODS

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.

9. ENTRY TAX

The bill has deleted the provision which permitted the States to Tax entry of goods into a local area for use or sale only to the extent levied by a Panchayat or Municipality.
However State Governments have been given the power to levy taxes on the intra-state trade of:
(i) petroleum crude;
(ii) high speed diesel;
(iii) motor spirit (petrol);
(iv) natural gas;
(v) aviation turbine
(vi) alcoholic liquor for human consumption.

10 ADDITIONAL TAX:

The Bill states that 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 directly assigned to the states from where the supply originates. This would not be a part of the Consolidated Fund of India (except for the amounts due to the union territories).
This shall be implemented for a period of two years, or as recommended by the GST Council. The centre may exempt certain goods from its purview and formulate principles for the determination of place of origin related to supply of good

11. WHO WILL LEVY GST

The Bill proposes that the GST Council shall recommend for setting up of an 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.

12. WHAT WOULD BE THE COMPOSITION OF 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.