The Goods And Service Tax Impasse - By Anna Goyal, IMI Kolkata

The imbroglio over the Constitution (122^nd Amendment) Bill has seemingly become feeble after the Union Cabinet approved the amendments to the proposed bill and incorporated suggestions by the States and the Opposition Parties.

The Drafting Concerns relating to this bill which comprised Clause 18 of the Bill imposing an additional tax of 1% on interstate transaction by manufacturing states is now cleared as the Union Cabinet did away with this provision and introduced a guarantee of 100 percent compensation for five years to make good any revenue loss incurred by them due to the introduction of GST.

With states on board and the Cabinet approving the amendments, the government is hopeful of passage of the long-pending Goods and Services Tax ( GST ) Bill in the ongoing monsoon session of Parliament, which ends on August 12.

Let us delve a little and know what exactly this substitute of “all” the indirect taxes is and how it will give confidence to trade and industry in India; the bottlenecks in its implementation and the final trade off between the centre, states and the opposition parties.

The Goods and Service Tax (GST), introduced in the Lok Sabha by the Finance Minister, Arun Jaitley, on 19^th December 2014 is a replacement to all the existing indirect taxes levied on all the goods and services by centre and states. It is a single comprehensive tax which will subsume all the other indirect taxes like sales tax, service tax, central excise duty, countervailing duty, state VAT, octroi, luxury tax, etc.

This Bill needs approval of both the houses of Parliament as per the Constitution of India. The Lok Sabha has given its assent and the bill is now pending in Rajya Sabha.

So, here is why this is impasse.

Alcohol contributes significantly to state revenues. The bill proposes it to be included in its base for numerous reasons, the primary being the under reporting of liquor sales and interstate smuggling arising from rate arbitrage. Now, who would want to share this? The states are opposing it and in their defense are showcasing Art 366 (12A) of the Indian Constitution which excludes alcohol in the definition of GST.

The bill wants to catalyse the moribund power sector and moderate power tariff, which can contribute significantly, to improving manufacturing competitiveness by including it in its ambit. But the states are opposing it as it is a matter listed in the state list.

The Bill also provides for a GST Council to address all the issues relating to tax collections on goods and services by both centre and the state and decides the type of taxes that centre, state and local authority shall levy. It shall also decide which goods and service shall be subject to GST and the basis and the rate at which the GST shall apply.

Inclusion of petroleum products, alcohol and real estate should be done in the bill as and when the states are willing to support such changes.

It is evident that due to political gimmicks the impasse cannot be resolved. However in the interest of the nation and its image in the global front it is essential that it gets the accord. The recommendations must be taken as an opportunity to take a comprehensive re look at the bill. Once the bill is passed the industry shall need a preparatory time for its implementation.

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About the Author:  

Anna Goyal, PGDM 2016-2018, Graduated from St. Xavier's College Kolkata.