What is GST Council

The GST bill seeks to set up a GST Council. The GST Council aims to develop a harmonized national market of goods and services. According the GST Bill, the President must constitute a GST Council within sixty days of this Act coming into force. The composition of the GST Council includes:

1. “New article 279A will create a GST council, a joint forum of state and centre. The GST Council, and not the Centre, would be decision making authority for GST.” The President shall, within 60 days from the date of commencement of the Constitution (122 Amendment) Act, 2014, by order, constitute a Council to be called the Goods and Services Tax Council.
2.  The GST council shall consist of the following members, namely:-

a)      The Union Finance Minister Mr Arun Jetly Chairperson;

b)     The Union Minister of State in charge of Revenue or Finance Member;

c)      The Minister in charge of Finance or Taxation or any other Minister nominated by each State Government Members

  The GST Council shall make recommendations to the Union and the States on

a)      The taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax;

b)     The goods and services that may be subjected to, or exempted from the goods and services tax;

c)      The threshold limit of turnover below which goods and services may be exempted from goods and services tax;

d)     The rates including floor rates with bands of goods and services tax;

e)      Any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster;

f)       Special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and

g)      Any other matter relating to the GST, as the Council may decide.

 

4. One half of the total number of Members of the GST Council shall constitute the quorum at its meetings.
5. Every decision of the GST Council shall be taken at a meeting by a majority of not less than 3/4^th of the weighted votes of the members present and voting, in accordance with the following principles, namely:-

a)      The vote of the CG shall have a weightage of 1/3^rd of the total votes cast,

b)     The votes of all SG taken together shall have a weightage of 2/3^rd of the total votes cast, in that meeting.

Schedule VII of the Constitution of India will be amended vide 122^nd Constitutional Amendment Bill with a view to bring various Union and State taxes and duties in the GST Scope.

 GST will subsume following Central Taxes/ Duties on supply of goods and services :-

• Central Excise Duty (other  than on tobacco and its products and specified petroleum goods)
•  Additional Excise duty
•  Excise duty under Medicinal & toilet Preparation,
•  Special Additional Duty of Customs (SAD)
•  Service Tax
•  Taxes on Sale or purchase of newspapers and on advertisements published therein,
•  Central Sales tax (levied and collected by states). (it may be partially phased out since few commodities are outside the GST)
•  Surcharges & cesses relatable to supply of goods & services.

GST will subsume following State Taxes/ Duties:-

• State Value Added Tax/ Sales tax (other than alcoholic liquor for human consumption and specified petroleum goods)
• Purchase tax
• Entertainment tax
• Luxury tax
• Entry tax and  Muncipal Octroi
• Taxes on lottery, betting and gambling
• Taxes on advertisements other than those published in newspapers and broadcast on televisions and radios
• Surcharges & cesses  relatable to supply of goods & services.

 

GST will not subsume following Central Taxes/ Duties:-

ü  Basic custom duty

ü  Excise duty on tobacco and its products and specified petroleum goods

ü  Specific cesses (other than relatable to supply of goods & services).

 

GST will not subsume following State Taxes/ Duties:-

ü  State excise duty on alcoholic liquor for human consumption

ü  Taxes on entertainment and amusements to the extent levied and collected by a Panchayat or a Municipality or a Regional Council or a District Council

ü  Specific cesses (other than relatable to supply of goods & services)

ü  Stamp duty on transfer of immovable property

ü  Tax on consumption or sale of electricity.

With the introduction of 122^nd Constitutional Amendment Bill, 2014, the broad framework of GST is now clear. The GST will be a dual tax with both the Central GST and State GST levied on the same base. Thus, all goods and services barring a few exceptions will be brought into the GST net. There will be no distinction between goods and services for the purpose of the tax with a common legislation applicable to both.

• Understanding the concept
• Evaluate the impact on own industry, its input suppliers of goods and services and output procedures
• Input VAT credit on stock on the date of transition
• Unutilized Cenvat Credit on the date of transition
• Contracts already entered and partly executed on the date of transition
• Existing tax holidays and tax incentive schemes
• Registration – consolidation or new registration in the respective state
• Pending assessments and refunds
• Adequate training to staff
• Updating the accounting software.

Design Issues

•  Constitutional amendments
•  Enactments of legislations
•  GST rates - to be decided by GST Council
•  Determining exempted and zero rated activities, Non vatable goods & services
•  Seamless input tax credit removing all cascading effect.
•  To determine the basic exemption limit
•  Framework for exemption and composition
•  Registration, payment of tax, and filing of returns
•  future of various existing exemptions under Cenvat and State VAT

Operational Issues

•  Monitoring of inter- state trade
•  Sharing of information using comprehensive IT network
•  Improving relations between centre and state
•  Common approach of the states, i.e., common law, common assessment procedure and even a common return.

 Infrastructure Issues

•  Human Resource of the department
•  IT Infrastructure
•  Impact on Small Enterprises
•  Cross - verification of documents must be strengthened
•  Decision on elimination of Check Posts
•  Common dispute resolution mechanism
•  Common procedure for levy, assessment, collection and appropriation
•  Training
•  Persuasion to the State Government

As next step, this Bill needs to be debated and voted on by the Lower House of Parliament. Thereafter, it would need to be voted on by the Upper House of Parliament, before being ratified by at least half of the States. 

Models of GST

Central GST

•Two levels of governments would combine their levies in the form of a single National GST.

•Central Government will collect most of country’s total tax revenue, leaving very little for sub – national Governments.

State GST

•States alone levy GST, and the centre withdraws completely from GST and VAT.

•Significantly enhance the revenue capacity of States and reduce their dependence on the Centre.

Dual GST

•GST levied by both tiers of Government concurrently. Central GST administered by Central Government & State GST administered by State Government.

•Central GST to subsume central taxes, such as, excise duty, CVD, SAD and service tax

•State GST to subsume VAT, Octroi, entry tax, luxury tax, etc.

Rates of GST

The GST will be on dual structure, where, the Central GST shall be levied and collected by the Centre and the State GST shall be levied and collected by the States.

Centre will also levy and collect the Integrated GST on Inter State transactions. It will be distributed amongst States.

Rate of GST would be on the basis of Revenue Neutral Rates (RNR). RNR is defined as the rate at which tax revenue will remain same for both Centre and the States, despite allowing input tax credit and other factors.

• It shall mean the rate that allows the Centre and the States to sustain the current revenues from tax collections; and therefore, taking into various aspects, such as, any tax losses because of taxes subsumed and/or phased out, grant of input tax credits as well as sharing of the tax base.
• In this regime, the revenue of the Government would not be same in comparison with the present tax structure due to tax credit mechanism, removal of cascading effect or otherwise. Therefore, an adjustment in tax rate is required to avoid reduction in revenue of Government. Hence, the tax rate has to suitably adjusted to make sure the tax revenue does not reduce.

The GST rates have not yet been finalized; but most likely, it might be in between 16% to 24%. Task of finalizing the tax rates will be given to GST Council.

“Entry tax will be subsumed in the GST. However, since some states fear losing revenues, the government has proposed 1% extra levy for states for a period of two years. Additional tax at 1 percent is to be applied on the inter-state supply of goods and services for a period of two years or such other period as the Goods and Services Tax Council may recommend which would directly accrue to the originating State and therefore would not be shared.

Petroleum to be included in GST but taxed at zero rate till the time GST council decides. Thus, petroleum will be taxed in the present form for some years.

Alcohol products are outside GST.”

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