GOODS AND SERVICES TAX , INDIA

Tax Structure In India and GST

Timeline

Recommendations by Committee

Major Challenges in Implementation

Problems in the current taxation system for that GST plans to improve

Benefits over the current system


Tax Structure in India :

Direct TaxesIndirect Taxes

levied and paid by the same person. levied on someone else but goes from the pocket of someone else.

eg. Income Tax : Mrunal garnered total income of Rs.10lakhs in 2012 and thus Income Tax Deptt of India would levy tax on his income which he himself is liable to payeg. Service Tax : Mrunal goes to dine at some expensive restaurant and eats vegetarian dishes worth Rs.1000 and pays Rs.123.6 as Service tax. Now here the Restaurant owner is actually liable to submit the service tax to government but he asks Mrunal to pay him first so that he can submit it to the government.


GOODS AND SERVICES TAX

GST is a proposal of tax in India which would be a comprehensive tax after merging many indirect taxes. Not only it will replace Central Indirect taxes but will replace state levied indirect taxes too.France was the first country to introduce it.In India, a dual GST is being proposed wherein a central goods and services tax (CGST) and a state goods and services tax (SGST) will be levied on the taxable value of a transaction.Features : 1. It will be collected on VAT method ie tax at every stage of value addition.2. It will be imposed at an uniform rate @ 20% (Centre state share = 12 and 8 percent respectively)

Will prices grow up after implementation of GST ?In fact, the prices of commodities are expected to come down in the long run as dealers will be allowed to avail the CENVAT credit of Excise duty paid by Manufacturers and more over he will be allowed to avail the CENVAT credit of tax paid on services also. This passing of the benefits of reduced tax incidence to consumers by slashing the prices of goods will definitely reduce the prices.

Implications of GST on imports and exportsImports would be subject to GST. Exports, however, will be zero-rated, meaning exporters of goods and services need not pay GST on their exports. GST paid by them on the procurement of goods and services will be refunded as similar to the present scenario.

Can states decide to opt out of GST? In a deviation from its earlier stand, the government has agreed for a phased roll-out of GST. States will also have the flexibility to opt out of GST.

How will it become a reality? The GST can be implemented only through a Constitutional Amendment Bill, which means it needs to be approved by not less than two-thirds of the members present and voting in each House of Parliament. The GST must also be ratified by the legislatures of at least one-half of the states.

TIMELINE

2000NDA setup empowered committee under Asim DasGupta to design GST model.

2006-07Union Finance Min Chiddu announced GST would be implemented from Apr 1 , 2010 and asked the empowered committee with state finance ministers to submit their views.

2008The reports were received by GOI (under the leadership of Mohan LOL)

20091.Committee of Principle Secretaries of the states setup2.Discussions with the then Fin-Min (And now the proud successor to the lady who loved to travel abroad on sarkari money) Pranab Da. 3.Detailed Discussion Papers prepared4. Tax Rate Proposal : Mostly the GST rates are between 15-20% worldover and the same is expected for India too (After all we are too afraid to innovate and loves to immitate).

2011Constitution 115th Amendment Bill introduced to enable state legislatures to frame laws for levying GST .1. it seeks to enable President (sorry The President) to setup within 60 days of passage of the bill a GST COUNCIL with Chiddu (Union Fin-Min) as Chairperson & MoS for Revenue + Fin-Min of all the states as members.GST Council will thus work on GST rates , exemption lists etc.2. setup a GST DISPUTES SETTLEMENT AUTHORITY : with a chairperson and 2 members.And finally it was referred to the Parliamentary Committee on Finance for examinations. (hopefully there wont be kanjoos examiners of UPSC :P)It recommended that sections proposing a Dispute Settlement Authority to decide disputes arising among states and take action against the states should be removed from the Bill, and that the GST Council itself should evolve a mechanism to resolve the disputes.The committee also recommended that decisions in the GST Council be taken by voting and not by consensus. It said one-third weightage for central representatives and two-third weightage for state representatives may be provided, with the decision taken by the Council being passed with more than three-fourth votes of the representatives present. The quorum for holding meetings of the Council is proposed to be raised to half from one-third

2011Part IIGST NETWORK : IT strategy of GST headed by the AADHAR Babu (Nandan Nilekani).Objective : Common portal for centre and states to enable electronic processing of registrations, returns , payments etc.NSDL (National Securities Depository ltd.) : technnology partner to operate as IT backbone of GST.

2012Finance ministry formed a committee of seven members under the chairmanship of Yogendra Garg, commissioner export, Mumbai, to frame a model legislation of GST for the Centre.

2013The Goods and Services Tax Bill is likely to be taken up in the winter session of Parliament, said J D Seelam, Minister of State for Finance.




RECOMMENDATIONS BY PARLIAMENTARY COMMITTEE ON FINANCE


1.Decision by voting not consensus

2.No dispute settlement authority

3.Modified bank model instead of Inter-State GST

4.Subsume entry tax in GST

5.Automatic compensation mechanism

6.Power to states in natural calamity

7.GST monitoring and evaluation cell



MAJOR CHALLENGES IN THE IMPLEMENTATION OF GST

Some CM of a BJP ruled state to a jholachap media person : Arre yeh humare khilaaf congress ki saazish hai taaki humare yahan development na ho sake.(States collect VAT at different rates ranging from 0% to 20% & the challenge is to convince them to be satisfy with their share of 8% as proposed.) However, the central government has said it will compensate states for the potential revenue loss. Mr Chiddu has set aside Rs. 9,000 crore towards the first installment of the balance of central sales tax (CST) compensation. Also, instead of an earlier proposal for a uniform GST rates across the country, the Union Government has agreed to have a floor rate of taxation with a narrow band

Administrative mechanism: In India, a merger between two government agencies is next to impossible, as long as appraisals and promotions are linked to seniority and regretfully, not performance.And integrating the revenue collection services of 28 (29 if Telangana is included)odd states and an extremely powerful Central Service into one GST collection agent.

Federal structure of the Indian constitution. Taking away the power of the states to tax items under the state list is tantamount to infringing upon the basic structure of the Constitution.

Meri Marzi : Items are being thrown in and out of the GST basket at fancy. Petroleum (which constitutes a major chunk of the import and manufacturing and consequentially a large part of Customs, Central Excise and Sales Tax) was very vehemently kept out of the ambit of GST until recently. Now Oil companies, sensing the chance of availing extensive tax credits have managed to bring it in. Alcohol is still kept out of the purview, and the states whose subsistence is dependent on incomes from liquor will never give up control over Abkari.



PROBLEMS IN THE CURRENT TAXATION SYSTEM GST PLANS TO IMPROVE

Ambiguous definitions Taxation at Manufacturing Level is levied on goods manufactured or produced in India which gives rise to definitional issues as to what constitutes manufacturing. Result = dterminations through judicial proceedings #more burden on judiciary.

Less ComplexityA strong single taxation system wherein various Central and State statutes will be subsumed into one comprehensive enactment. Process of judicial decisions would be speedy too with one statute covering all aspects of indirect taxes.

Exclusion of Services from state taxationServices remain outside the scope of state taxation powers and GST would include tax on all such services where states can not legislate.


BENEFITS OVER THE CURRENT SYSTEM

Economycommon market across states , will lead to increased compliance and increase India's tax-to-gross domestic product ratio

CorporateAverage tax burden on companies will fall. Reducing production costs will make exporters more competitive.

ExportersPhasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. Result = increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports

Centre And StateApproximately $ 15 billion a year of profits are predicted by the government with the implementation of GST as it is speculated to bring about raise in employment, promotion of exports and consequently a significant boost in overall economic growthAnother positive aspect of this proposal is that it is aimed at equitable division of tax burden between the manufacturing and services.

Individuals And CompaniesWith the collection of both the central and state taxes proposed to be made at the point of sale , both components will be charged on the manufacturing costs and the individual will benefit from lowered prices in the process which will subsequently lead to increase in consumption thereby profiting companies




Name Namit

References1.Indian Economy , 5th edition , Ramesh Singh , Chapter 17 : Tax Structure In India 2.http://en.wikipedia.org/wiki/Goods_and_Services_Tax_(India)3. http://centreright.in/2013/02/why-gst-is-not-a-good-idea/#.UmEVm9KBnPI4. http://www.dnaindia.com/money/1265576/report-all-you-ever-wanted-to-know-about-gst5. http://newindianexpress.com/business/news/GST-Bill-likely-in-winter-session/2013/09/12/article1780121.ece6. http://articles.economictimes.indiatimes.com/2013-08-13/news/41374977_1_services-tax-state-gst-goods-and-services7. http://www.caclubindia.com/articles/gst-what-why-when--3393.asp#.UmFF5RBbzYM8. http://profit.ndtv.com/news/cheat-sheet/article-gst-decoded-why-chidambaram-has-given-rs-9000-crore-to-states-317055

Centre-state Relations

A.245 : Parliament can legislate on whole territory, can also make extra-territorial legislations.


A.246 : Divides Legislative Powers into 3 Lists in 7th Schedule
Union ( 97 items ) Defence, foreign affairs, shipping, railways
Concurrent ( 47 ) Uniformity is desirable but not essential. ex: detention, marriage, electricity, trade unions.
Sate List ( 66 ) public order, forest, public health, agriculture.


However, centre can legislate on state list subjects in certain exceptional circumstances.


Strong Centralizing tendencies:

1. A. 249: 2/3rd majority is R.S in the interest of nation.

2. A. 250: Proclamation of emergency. ( national emergency )

3. A. 252: two or more states approach parliament and adopt parliaments legislation. Only Parliament can then amend it.

4. A. 253: implementation of international treaty.

5. A. 254: Conflict between state and central law on concurrent list, central law prevails.

6. A. 356: Presidents rule (failure of constitutional machinery ); Parliament can legislate on state list subjects.

7. A. 352: National emergency-- war or armed rebellion; Parliament to legislate on state list.

8. A. 360: Financial Emergency -- money bills of state to be reserved for presidents consideration.

9. Residuary powers with the Parliament.

10. Planning Commission: Discretionary grants.

11. A. 256: execution of central law by states; centre can issue directions, violations attracts presidents rule.

1. ex: protection of railways( union list), by state police ( under states control )

2. extra cost are paid by centre.

12. A. 280: governor can entrust union executive machinery with the executive powers of the state.

13. A. 201: President withholds assent to bills reserved by governor for presidents consideration. Absolute veto.

14. Appointment of governor.


Protection of Federalism/Federal Structure:

1. Residuary power is assigned to centre only when it cannot be comprehended in any of the items enumerated in seventh schedule.

2. Doctrine of pith and substance: protects against disguised encroachment of centre on items of state list, if the pith and substance of legislation lies within sphere of states competence.

3. Needs 2/3rd majority in R.S to legislate on state list items, difficult to obtain in the era of coalition politics.

4. under A. 252: Parliaments power to legislate on state list extends to only those two or more states which have voluntarily agreed; it is not coercive.

5. A. 254: if presidents prior assent is taken, then states law prevails unless specifically nullified by the parliament.

6. A. 368 : amendment of constitution which affects states representation in R.S and amending any matter in seventh schedule requires prior assent of president.

7. A. 271: Income tax proceeds are distributed b/w state and centre on the basis of recommendations of finance commission.

8. Finance commission: principles of devolution of resources to states are generally followed. Deserving state gets its due share without becoming a matter of politics.

9. A. 257: when president delegates executive power of centre on states, the extra cost of arising out of carrying out of such functions are compensated to states.


Means of cooperation between centre and states:

1. A. 261: Full faith and credit to all public acts, records, judicial proceeding of union and all states.

2. A. 262: Settlement of inter-state water disputes through water tribunals.

3. A. 263: Inter-state council: to coordinate between centre and states and among states themselves. enquires and advices in matters of disputes.

4. All India services maintain unity of the country.

5. NDC approves plans of the planning commissions.

6. Zonal councils.

7. National integration councils.



Issue Areas

1. Appointment of governor is partisan.

2. unreasonable imposition of Presidents rule owing to political considerations.

3. Discretionary grants by planning commission.

4. Plans of Planning commission covers entire field of administration and states owing to lack of funds adhere to the plans dictated by the P.C. This hampers states ability to cater to their own region specific requirements.


Suggestions

1. Planning commission should set broad targets for planning and stop micromanaging plan formulation of various ministries. Ministries should form their own plans which P.C may consider for approval.

2. There is a need to evolve bottom-up approach to planning where various ministries and states formulate their plans considering the utility of such plans. Later, they should be incorporated in Planning commissions plan.

3. Sarkaria: NDC ---> NEDC. should meet frequently, at least twice a year.

4. Sarkaria: Impose presidents rule sparingly.

5. Sarkaria: Centre should consult states before making a law on concurrent list.

6. Sarkaria and Punchhi: a person who is eminent person in public walks of life, outside state, and a detached person be appointed as governor. He should be given fixed tenure of 5 years term.

7. Punchhi

1. under A.201, president should return bill within 6 months, if he asks for modification of bill or totally rejects it, reasons for the same have to be stated.

2. constitutional procedure for appointment of governor and provide for his impeachment in the lines of A.61 ( presidents impeachment ).

3. Provision of localized emergency at district or sub-parts of district under governors rule for maximum 3 months period.

4. zonal councils should meet at least twice a year.

5. Create all India services in health, education, engineering and judiciary fields. Further strengthen current all india services.

6. Finance commission should be made a permanent body.

7. P.C should stop micromanaging plan formulation.
Conclusion

1. Coalition era: political consideration weigh higher than financial and administrative considerations.

2. P.C grants, a quantitative look at grants doesnt show any glaring discrimination among states allocation of planned expenditure.

3. national flagship programmes like MNREGA, NRHM, SSY have been brought through unilateral legislation of centre, there is a need to obtain inputs and consensus of states before enactment of them. A more collaborative approach is needed.

4. In case of GST, thankfully, the discussions are on the basis of facts and mutual interest. this reflects hallmark of federation.

issues:

1. NCTC: fear of loss of federal autonomy; law and order is in state list. Preventive detention in concurrent list.

2. GST: central service tax and states sales tax are to be brought under gst.

3. teesta river sharing: states interference in foreign policy of india; coalition dharma becomes important.

4. Tamil autonomy in Srilanka: politics around public opinion in state are dictating indias foreign policy.
Rajshekhar Gidnavar

References:
1. arora and goyal: Indian public administration
2. The HIndu news Paper.