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After implementing the state VAT, the GoI wanted to go for the proposed GST (Goods and Services Tax). This is aimed at integrating the indirect taxes of Centre and states into a single national tax—popularly known as the Single VAT of India. By creating a single market at the pan-India basis it will help the business and industry in a big way. The tax has potential to increase GDP up to 2 per cent (conservative estimates by some experts). All the benefits which the state VAT brought to the market and economy are the same in case of the GST, too. The first proposal16 of the GST had suggested the following tax arrangements under it—
(i) To be collected on the VAT method (will have all the same features of the VAT).
(ii) To be imposed at pan-India level with uniformity in tax—better say a single rate of indirect tax—replacing the multiple central and state indirect taxes.
(iii) Four taxes of Centre (cenvat; service tax; stamp duty and central sales tax) and nine taxes (excise duty, sales tax/vat; entry tax; lease tax; works contract tax; luxury tax; turnover tax; octroi and cess) of the states to be merged into the GST.
(iv) To have a single rate of 20 per cent (12 per cent to flow to Centre and 8 per cent to the states).
After studying the Kelkar Committee report, the Government in 2006 decided to introduce the new tax since the financial year 2010-11. Lack of consensus between the centre and states kept the process delayed—to sort out the contentious issues, one after another, two independent expert committees submitted17 their advices to the Government. Finally, the Constitution (101st Amendment) Bill, 2016 was cleared by the Parliament by early August 2016
—paving the way for its implementation. By late September 2016, the GST Council (GSTC) was created by the Government. The Council has been entrusted with the power to make recommendations to the Union and the
States on various issues—rates, floor rates, exemption, etc.—related to GST.
By February 2017, the Council18 had 10 rounds of meetings in which the major decisions taken were as given below:
(i) The central taxes to be subsumed in it are—central excise duty (cenvat); additional excise duty; service tax; additional customs duty (commonly known as countervailing duty; and special additional duty of customs (total 5 taxes).
(ii) The state taxes to be subsumed in it are—state vat; entertainment tax (other than the tax levied by the local bodies); central sales tax (levied by the centre and collected by the states); octroi and entry tax; purchase tax; luxury tax; and taxes on lottery, betting and gambling (total 8 taxes).
(iii) Concept of ‘declared goods of special importance’ dropped.
(iv) On inter-state transactions of goods and services an Integrated GST will be levied.
(v) Exception from GST on alcoholic liquor for human consumption, petroleum and petroleum products (on latter it will be imposed on a later date).
(vi) The threshold limit for exemption from levy of GST would be Rs. 20 lakhs for normal States and Rs. 10 lakhs for the Special Category States.
(vii) The threshold for availing the Composition scheme would be Rs. 50 lakhs—with the Service providers kept out of it.
(viii) States to get compensation for 5 years for loss of revenue due to implementation of GST (for this base year will be 2015-16 with growth rate of 14 per cent).
(ix) Minor changes in rules and regulations may be permitted with the approval of the Chairperson, if required (due to suggestions from the stakeholders or from the Law Department).
(x) All exemptions/incentives on indirect taxes will rest withdrawn with obligation to pay GST. If any of them continue it will be administered by way of a reimbursement mechanism.
(xi) Bands of rates (in per cent) of goods under GST shall be 5, 12, 18 and 28 and in addition there would be a category of exempt goods. Further,
a cess would be levied on certain goods such as luxury cars, aerated drinks, pan masala and tobacco products, over and above the rate of 28 per cent (for payment of compensation to the States).
(xii) Keeping in mind the federal structure of India, there will be two components of GST—Central GST (CGST) and State GST (SGST)— both Centre and States levying GST across the value chain on every supply of goods and services. States will assess 90 per cent of assessees with annual turnover below Rs. 1.5 crore while remaining 10 per cent by the centre. For taxpayers with over Rs. 1.5 core turnover, the split is 50:50 between the centre and states.
The tax is decided to be “fully online” (no manual filing of tax) based on information technology (IT) put in place by the GST Network (a non-profit, non-government company registered by the centre and states). The network is to provide a standard and uniform interface to the taxpayers, shared infrastructure and services.
Meanwhile, barring few reservations, the Economic Survey 2016-17 has shown satisfaction19 on the transformational tax GST—as per it, it will create a common Indian market (internal integration of India which will help in the external integration—i.e., globalisation), improve tax compliance, boost investment and growth, improve governance as well as it is a bold new experiment in the ‘governance of cooperative federalism’. It has suggested to bring land and real estate into GST fold. The Government, in the Union Budget 2017-18, announced to implement the new tax from July 1, 2017.