Lately, there has been lot of discussion about revamping the entire indirect taxation structure in India. The recent hue and cry about Goods and Services Tax (‘GST’) has created lot of curiosity in the entire country. Being an indirect tax practitioner, GST as a topic, is quite close to my heart and so, I take the opportunity to write a few words about the same.
We, as citizens of India, bear the burden of taxes not only directly by paying income tax, but also indirectly, by paying tax on goods we purchase and services we avail. Some of the significant indirect taxes in India include Value Added Tax (levied on purchase of goods), Service Tax (levied on services rendered), Central Excise Duty (levied on manufacture of goods) and Customs Duty (levied on import/export of goods), leading to multiplicity of taxes. This multiplicity of taxes leads to something called cascading of taxes. Cascading implies levy of tax on tax. For instance, I go to purchase a pen manufactured in India. On manufacture, excise duty is levied and such amount of excise duty is included in the sale value at which such pen is sold. Thereafter, on sale of such pen, value added tax is levied. Meaning thereby, that VAT is levied on a value which is inclusive of excise duty, thus leading to the burden of tax on tax.
In order to overcome the problem of multiplicity of taxes in India, introduction of a simpler tax base, became much imperative. As a solution to the growing problem of cascading and multiplicity of taxes in India, the then Minister of Finance, Shri P. Chidambaram, laid the foundation of Goods and Services Tax in the budget speech of the year 2007-08.
GST is basically a tax on goods and services with comprehensive and continuous chain of set-off benefits from the producer’s point and service provider’s point upto the retailer’s level. It is essentially a tax only on the value addition at each stage, and a supplier at each stage is permitted to set-off, through a tax credit mechanism, the GST paid on the purchase of goods and services as available for set-off on the GST to be paid on the supply of goods and services. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages. This would lead to eliminating the burden of tax on tax, thus minimising the cascading effect which is otherwise quite rampant in the present indirect tax structure.
This is quite a positive change. The introduction of GST will, in fact, be one of the largest indirect tax reforms which India will get to witness. In general, the Indirect Tax structure in India is a complex system of interconnecting laws and regulations, which includes specific laws of different states. Considering the federal structure of India, it has been decided to introduce a dual GST model, comprising of Central GST, governing transactions at central level, as well as State GST, governing transactions at state level. So, in order to ensure uniformity in the indirect tax structure in India, there has to be cohesiveness among Centre and the states to arrive at one amicable solution acceptable to all.
Pursuant to the announcement by Shri. P Chidambaram regarding introduction of GST in India, many steps have been taken. Each year in the Budget session, promises were made regarding the introduction of GST. From 2007 till 2015, the government has changed but the fate of introduction of GST hasn’t. All it has seen all these years is nothing but PROCRASTINATION. Earlier when UPA was in power, NDA had its reservations about introduction of GST in India and now that tables have turned, the thought process has also reversed. UPA which was earlier quite supportive of introduction of GST is now hesitant as it needs lots of plus and minuses in the draft model rolled out by the government.
The Constitution of India is the bible for the law makers. The Legislation derives its power to formulate laws from the Constitution of India. At present, the Constitution does not permit Centre to levy taxes on matters on which the State has been given the authority. Similarly, the States do not have power to frame laws on matters on which Centre has been given the authority. For instance, customs duty is a central levy, and only Centre has the power to frame laws in relation to levy of service tax.
The states have not been empowered to formulate law regarding levy of service tax. Similarly, VAT is a state subject and thus, Centre does not hold the authority to formulate law regarding the same. In order to ensure the introduction of GST, it is imperative that both the Centre and the States are given power to formulate laws on both goods (in the nature of excise duty, VAT etc.) as well as services (tax in the nature of service tax). Therefore, the Constitution of India has to be amended and powers have to be appropriated to both Centre as well as States to that extent, as first step towards formal introduction of GST in India.
Accordingly, the UPA Government, during its term, had introduced the Constitution (115th Amendment) Bill, 2011 to introduce the Goods and Services Tax to give concurrent taxing powers to both the Union and States. The said Bill was never passed.
Thereafter, the UPA Government came down and the NDA Government got into power. As their effort of introduction of GST in India, NDA Government introduced the Constitution (122nd Amendment) (GST) Bill, 2014, which has only been passed by Lok Sabha and continues hanging for its fate to be decided by Rajya Sabha. The winter session of Parliament, which started on 26th November 2015 is likely to go on till 23rd December 2015 and all fingers are crossed that the Constitution (122nd Amendment) (GST) Bill, 2014 be passed during this session. Passing of the Constitution (122nd Amendment) (GST) Bill, 2014 shall be first milestone achieved towards introduction of GST in India. Once the Constitution is amended, the Centre and States will come out with draft GST Law which would govern the levy of GST in India.
The political turmoil of India has always affected policies and progress of India. Be it the introduction of FDI in retail, or the Black Money Act, or now the introduction of GST in India, there has always been delay in implementing right decision at the right time. And political fabric of our country is greatly responsible for all such delays. Being a concerned citizen, I can just hope against all hopes that the government keeps up to its promise of introducing GST in April 2016.
