Come April 1, 2016, cars, LCDs and many consumer goods will have uniform prices across India. This will be possible through the Goods and Services Tax (GST), for which the Centre introduced a Constitution Amendment Bill in the Lok Sabha on Friday.
“We have made sure that no State will lose a rupee of revenue. It will be a win-win situation, where they will gain,” Finance Minister Arun Jaitley said while introducing the Bill. The new indirect tax regime aims to remove the cascading effect of taxes and provide for a common national market for goods and services.
“This required a Constitutional amendment to confer concurrent power to the Centre, States and Union Territories, to make laws for levying goods and services tax on every transaction of supply of goods or services or both.
“We are interested in strengthening the States because only then will the national economy be strengthened. Therefore, when the Bill is taken up for discussion, perhaps in the next Session, we will make sure that the interest of every State is well looked after,” he said.
Jaitley said that the object behind GST is to ensure seamless transfer of goods and services across the country.
“Let there be no tax on tax. If you have multiple taxation, the burden and the procedural complications increase. On the destination principle, the tax is at the last stage,” he said in response to various queries raised by members of the House.
Compensation assuredThe Bill by the Narendra Modi Government is different from the one brought in by the previous UPA Government.
First, there is a constitutional assurance of compensation for five years in case of losses due to GST.
Second, the Bill has proposed bringing all goods and services, including petroleum and tobacco, within the GST net. However, in order to satisfy States, it has been said that date for imposition of GST on petroleum products will be notified later, on the basis of recommendations of the GST council.
Octroi and entry tax have been subsumed in the proposed structure. “Service tax is entirely in the domain of the Centre today. It is going to be shared with States now.
“Places like Maharashtra, from where one-third of the national service tax comes, will benefit. When we share it with them, it more than takes care of the octroi absorption into the GST,” he said.
Also, there is a provision for 1 per cent additional tax on inter-State trade. It will be collected by the Centre but assigned to the States from where the supply originates.
However, Harishanker Subramaniam, Partner and National Leader (Indirect Tax) with EY, said that the biggest concern is the additional levy the States have been allowed to charge as an origin tax (akin to CST on interstate transactions) outside the GST structure for two years, or as further decided by the GST Council.
“This intrinsically will be a conflict to the destination-based concept under GST and will lead to continued cascading,“ he said.