he GST bill has been cleared by the Lok Sabha or Lower House. But it is stuck in the Rajya Sabha or Upper House. In order to meet the deadline, the government needs to get the bill passed. After being passed by Rajya Sabha, the bill has to be approved by more than half of the 29 states. Then also the journey doesn’t end for the GST, as before implementation, the states have to ratify similar bills in their assemblies with the much needed two-third majority. So, it is a long process before it is implemented strictly.
GST is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level. According to the government, GST is 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 value addition at each stage, and a supplier at each stage is permitted to set-off, through a tax credit mechanism. 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.
In simple words, the GST will merge slew of state and central levies into a national sales tax. Major Central and State taxes will get subsumed into GST which will reduce the range of taxes, and thus bring down the compliance cost. With GST, the burden of central sales tax (CST) will also be phased out.
GST is considered as one of the biggest tax reforms in the country as it will alleviate the burden of “tax on tax” in the pre-existing Central excise duty of the Government of India and sales tax system of the State Governments. Earlier, the introduction of in the States helped to remove the effects by giving set-off for tax paid on inputs as well as tax paid on previous purchases and has again been an improvement over the previous sales tax regime. But both the CENVAT and the State value added tax (VAT) have certain limitations.
With the introduction of GST at the State level, the additional burden of VAT would be comprehensively removed, 31 and a continuous chain of set-off from the original producer’s point and service provider’s point upto the retailer’s level would be established which would eliminate the burden of all cascading effects, including the burden of CENVAT and service tax. The introduction of GST will not only include comprehensively more indirect Central taxes and integrate goods and services taxes for set-off relief, but also capture certain value addition in the distributive trade.
Since there would be a transparent and complete chain of set-offs, GST will help widening the coverage of tax base and improve tax compliance. This may also lead to higher generation of revenues which may in turn lead to the possibility of lowering of average tax burden in industry, trade and agriculture. Now, one will have to wait and see if the bill is passed this session. The Finance Minister is still hopeful.
