NEW DELHI: India took a big leap forward in rolling out the goods and services tax (GST), seen as the biggest tax reform since Independence, with the Lower House of Parliament giving its nod to four supplementary Bills.
Their passage will allow the government to prepare for the July 1 launch of the single levy that will replace multiple central and state taxes and make the country a seamless national market, boosting India’s growth rate.
“Once this tax is implemented, all goods and services will be able to move within the country. There will be a one-tax system throughout the country,” FM Arun Jaitley said, moving the Bills. “It is a revolutionary Bill that will benefit all.”
The Lok Sabha passed the Bills late on Wednesday evening after several hours of debate.
“A significant step has been taken,” Jaitley said after the Bills were approved. “Parliament has accepted the draft approved by the GST Council as it is. We are seeing history in the making. We are going to see a new system of taxation. We seem to be well within time. I would say this is an important step forward. I am very optimistic of meeting the deadline.”
The detailed rules for the single tax and rates of individual goods are to be decided next by the GST Council and the states will take up the state GST Bills in their respective assemblies.
Jaitley Defends Multiple Tax Rates Revenue secretary Hasmukh Adhia called the parliamentary approval a “milestone in the economic history of this country”.
The government is simultaneously planning a massive outreach to increase awareness and get stakeholders trained and ready for the tax that, according to some estimates, will lift the country’s GDP by up to 2%.
The four items of legislation — central GST, integrated-GST, union territory-GST and the compensation Bill — provide for a peak tax rate of 40% and the establishment of an authority to protect consumers from profiteering by businesses after the tax is in place. The Bills have been introduced as Money Bills, which will ensure a smooth passage through the Rajya Sabha where the ruling coalition does not have the numbers. The Upper House of Parliament has limited powers in respect of Money Bills.
The GST Council, the apex body comprising the Centre and the states set up to decide on GST issues, has finalised a four-tier tax structure of 5%, 12%, 18% and 28%, but the highest slab has been pegged in the law at 40%.
“GST would be a very regressive tax if multiple rates are not there,” Jaitley said, rejecting the criticism that this will complicate matters. “In the beginning, having multiple rates will be easier.” He said it would be regressive to have the same rate on a BMW car and on footwear, for instance.
Besides, a cess would be levied on demerit and luxury goods on top of the peak rate to create a fund, the proceeds of which will be utilised to compensate states for revenue losses on account of GST. If the tax rate had been raised to build up the compensation fund instead of the cess, the tax burden would have become very high, Jaitley said.
“It is important for the government to ensure that 18% is a general rate and exceptions, particularly those falling under 28% category, are minimised,” said Pratik Jain, indirect tax leader, PwC India, while calling the passage of the Bills a “great achievement” for the government.
Jaitley defended the anti-profiteering law, saying any rebates should be passed on to consumers. He said GST on real estate and petroleum goods could be levied once states endorse such a proposal and these would be taken up for discussion later.
Jaitley dismissed the suggestion that Parliament has no power in respect of GST. “Rates would come for approval in Parliament or state assemblies,” he said, asserting that there will be parliamentary control. “Plenary power will be with Parliament or assemblies. We will have to be guided by the consideration… of the GST Council… Consequences of not accepting recommendations would be then everyone can decide to fix a separate law or rate,” the minister said, adding that allowing for this would create anarchy with 32 assemblies having separate provisions.
The government has set up working groups to take up issues faced by various industry sectors to ensure smooth transition to the new regime besides the major countrywide outreach programme mentioned above.
The technology backbone is approaching readiness with most state governments leading the registration campaign for bringing industry onto the GST tax portal. The GST Council will meet on March 31 to clear the rules and procedures and subsequently begin work on fitting goods and services in the tax slabs.
Much needs to be done between now and July 1. “The rollout of GST within a time span of the next three months seems a Herculean task, keeping in mind the paradigm shift in indirect taxation in India,” said Bipin Sapra, partner, EY. “Thus, both the government and industry have a lot to do and miles to go before the GST can be implemented in right earnest.”
The law provides for a composition scheme for turnover below Rs 50 lakh under which manufacturers will be charged 1% CGST and 1% SGST, restaurants -2.5% CGST and 2.5% SGST and other supplies -0.5% CGST and 0.5% SGST. This has been brought in to reduce the compliance burden for small and medium enterprises.
It has provisions for the levy of GST on specified petroleum products (petroleum crude, petrol, high-speed diesel, aviation turbine fuel and natural gas) from a date to be notified by the government on the council’s recommendation. The I-GST Bill provides for the levy of tax on all inter-state supplies of goods and services except supply of alcohol for beverages at a rate to be notified not exceeding 40%. The tax collected will be apportioned equally between the Centre and the states. It will not apply to Jammu and Kashmir. The GST Council, chaired by Jaitley, approved the four legislations over a series of 12 meetings.