India unites ~ Rajya Sabha passes GST in monsoon session of Parliament

In life, they say only ‘death and taxes’ are certain !!  Tax returns for 2015-16 (AY 2016-17) were originally to be filed by July 31, but due to  day-long strike by PSU banks, the deadline was extended to August 5. For Jammu and Kashmir, the deadline is  August 31 citing ongoing turmoil in the state. It may be interesting to see, how much tax gets generated from Kashmir and how much is spend on it !!

For the commoner [aam-admi] – there is more of taxes, some felt, some injected.  There is  a cascading burden of “tax on tax”, as there are no set-offs for taxes paid on inputs or on previous purchases. Currently, we have Value-Added Tax (VAT) systems both at the central and state levels. But the central VAT or CENVAT mechanism extends tax set-offs only against central excise duty and service tax paid up to the level of production. CENVAT does not extend to value addition by the distributive trade below the stage of manufacturing; even manufacturers cannot claim set-off against other central taxes such as additional excise duty and surcharge. Likewise, state VATs cover only sales.  Many talks had been on air about an integrated tax in a federal set-up.

India took a giant step towards a goods and services tax with the Rajya Sabha, in a rare show of strong bipartisan convergence, approving the tax reform measure first considered almost 30 years ago. Once implemented, it is expected to do away with multiple indirect taxes, make the economy more efficient and transform the country into a single market. The Narendra Modiji Government finally crossed the Rajya Sabha hurdle, where its lacks a majority — after more than 18 months of tough negotiations with Congress paved the way for implementation of the legislation. The government's ability to steer the Constitution amendment through choppy political waters was seen as a test of its commitment to economic reforms.

The Monsoon session of Parliament 2016 will go down in history as the one which passed the landmark The Constitution (122^nd  Amendment) (GST) Bill, 2014 with 203 Ayes and 0 Noes. The AIADMK which had wanted six amendments, as expected walked out after registering their point. All present and voting in Rajya Sabha were for passage of the Bill. No one opposed it. That meets the constitutional requirement for a constitutional amendment bill – that it shall be passed by no less than half of the members of total strength of the House and no less than two-third of present and voting. Since the Rajya Sabha introduced a few amendments while passing the bill, the Lok Sabha will now have to pass the revised bill before the Monsoon session ends on 12 August. But given the numbers of the NDA in Lower House and all parties arriving at a larger consensus, its passage is not expected to be problematic.

The bill was critical for Prime Minister Modiji  to show the world that his resolve to reform the economy was strong. He had learnt his lessons from Land Acquisition Bill. In the end it seemed like there were still a few ego issues on both sides, but when the right atmosphere was created for dialogue, the issues were resolved.

The Goods and Services Tax Bill or GST Bill, officially known as The Constitution 122^nd Amendment) Bill, 2014, proposes a national Value added Tax to be implemented in India.  GST  would be a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India, to replace taxes levied by the Central and State governments. Goods and services tax would be levied and collected at each stage of sale or purchase of goods or services based on the input tax credit method. This method allows GST-registered businesses to claim tax credit to the value of GST they paid on purchase of goods or services as part of their normal commercial activity. The introduction of Goods and Services Tax (GST) would be a significant step in the reform of indirect taxation in India. Amalgamating several Central and State taxes into a single tax would mitigate cascading or double taxation, facilitating a common national market. The simplicity of the tax should lead to easier administration and enforcement. From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%

As we all know, there are taxes levied by the Central and some levied by the State, both having exclusive areas.  There are direct taxes like Income tax and indirect taxes levied on manufacture of goods, provision of services and consumption.  The commonest example read in many web is that of a ‘shirt’.

It has first to be  manufactured before it is consumed. The central government, therefore, levies its indirect tax called central excise at the factory gate. Subsequently, a shirt reaches a retail outlet and is bought by a consumer. The state government, at this stage, levies a tax on consumption dubbed value added tax (VAT). So, we have a tax at the factory gate which adds to the cost of the shirt and another tax on the final price. When the same shirt crosses the border of States, there could be CST – GST aims to remove tax barriers between states and create a single market.

Today, the news is of that giant stride, of having GST approved – will try to write more on its impact, getting more inputs from experts.

With regards – S. Sampathkumar

4^th Aug 2016.