One Nation and One Tax will see end to Tax Evasion, Black Money and a rise in GDP
Prof Bhagwati Prakash
The Lok Sabha has passed the historic law for a single federal tax, the Goods and Service Tax (GST) with four separate bills, paving way for a single unified indirect tax in the country. The government aims at rolling out a new and unified tax regime from July 1 that will subsume a slew of federal and state taxes transforming this nation of one sixth of the global population, into a single market.
The four bills, passed by the Lok Sabha, would now have to be presented before the Rajya Sabha but, these need not be passed from there, as they are mere finance bills.
The four bills passed in Lok Sabha are the Central GST Bill, 2017, the Integrated GST Bill, 2017, the GST (Compensation to States) Bill, 2017 and the Union Territory GST Bill, 2017 which were passed after negation of a host of amendments moved by the opposition parties. The Proposed tax rates under the new regime range from 5 to 28 per cent, with 12 per cent and 18 per cent being the standard rates. Which tax rate will apply to which category of goods would be decided by the GST council at its meeting scheduled on May 18-19, in Srinagar.
The GST Council is the first federal authority, comprising the Central and State Ministers of all the States
together forming an autonomous constitutional authority. It (the council) has also agreed to take a decision on bringing real estate within the ambit of the new tax regime within a year of its rollout. However, the liquor has not been brought under the ambit of the GST. On the impact of GST on prices, it has been claimed by the Finance Minister that goods will become slightly cheaper. On the issue of multiple tax rates, the Finance Minister has said, one rate would be “highly regressive” as “hawai chappal and BMW cannot be taxed at the same rate”.
He further clarified that food articles are not taxed and will continue to be zero rated under the GST. All other commodities would be fitted into the nearest tax bracket, by the GST council. The GST Council has recommended a four-tier tax-rates regime of 5, 12, 18 and 28 per cent. On top of the highest slab, a cess will be imposed on luxury and demerit goods to compensate the states for revenue loss in the first five years of GST implementation.
However, the Central GST (CGST) law has pegged the peak rate at 20 per cent and a similar rate has been
prescribed in the State GST (SGST) law, which takes the peak rate to 40 per cent to come into force only in
financial exigencies.
The new GST will subsume central excise, service tax, VAT and other local levies to create a uniform market and is expected to boost GDP growth by about 2 per cent and check tax evasion. The original of taxes to be subsumed and die after GST are as under:
SALES TAX (CENTRAL & STATE) Introduced in 1957: Levied on sale of a commodity, produced or imported and sold for the first time. If sold
subsequently without being processed further, the product is exempt from sales tax
CENVAT (Introduced in 2000): Levied on the manufacture or
production of movable and marketable goods in India-either as a percentage of transaction value or the MRP of
the goods.
OCTROI: A local tax collected by the state government or the municipality on articles brought into a town for local use.
EXCISE DUTY Indirect tax levied on goods, manufactured in India.
SERVICE TAX (Introduced in 1994): Levied on services rendered by a person/ service provider.
ENTERTAINMENT TAX: Levied on amusement activities, exhibitions, large commercial shows or large
private festival celebrations.
VAT (Introduced in 2005): Indirect tax on consumption of goods, paid by its original producers upon the charge in goods or upon the transfer of the goods to its ultimate consumers.
ENTRY TAX (Introduced in 2000): Levied on movement of the goods from one state to into another and is levied by the recipient state to protect their tax base.
LUXURY TAX: Levied on luxury goods or premium products and services, not considered essential.
The GST Council, at its meeting on March 31, after the four bills were passed in Lok Sabha, cleared the bulk of framework rules that constitute the implementing guidelines of the goods and services tax regime. The quick decision by the GST Council within 2 days of passing of bills on March 31 reinforces the possibility of the new tax system to be rolled out from July 1 as stipulated by the government. Though, the industry has stepped up its demand to give more time to it and implement GST from September 1, the GST council will now again meet on May 18-19 to take up the last big and major remaining task of fitting individual goods into the four tax slabs. The council has already approved five rules dealing with registration, refunds, invoice-debit and credit note payments that have been amended in line with changes to the GST laws on March 31.
In addition, it approved the draft of four remaining set of rules as well, out of the total nine. Thus, the draft rules for input tax credit, valuation,
transition and composition scheme have been approved by the council. These drafts will be made public so that industry can give inputs and the final draft will be up for approval at the next council meeting to be held on May 18-19 in Srinagar.
However, on account of the impediment of the Article 370 of the Constitution, the GST, as on date would not be applicable for the Jammu and Kashmir unless the J&K Assembly passes separate bills. The bills passed in the Lok Sabha have excluded the J&K state explicitly from its scope.
So, in the Central-GST (CGST) and Integrated-GST (IGST) Bills, introduced and passed in the Lok Sabha on March 29, read that the provisions extend to the whole of India, except J&K.
As a result, when the CGST and IGST Bills would become Act, they would be applicable to the entire
country, except J&K. Once the J&K Assembly passes the laws, the Union government will have to amend the CGST and IGST laws and delete the phrases that they do not apply to the state of J&K. The deletion of the
phrases will make the laws applicable to the state. The bills passed in the Lok Sabha on March 29 say, they extend “to the whole of India except the state
of Jammu and Kashmir.”
Indeed the Article 370 was incorporated to the Constitution, in spite of explicit opposition of all prominent statesmen of that time. It was added solely in pursuance of the sinister design of Lord Mounbalten , Sheikh Abdullah and Jawaharlal Nehru in gross contravention to the national interests. Baba Saheb Ambedkar, the architect of our Constitution had not only refused to draft this anti-national provision, but even abstained from attending the meeting on the day, when this Article was proposed and discussed. Baba Saheb had refused to oblige the trio to draft such an
anti-national provision. Indeed, when Jawaharlal Nehru directed Sheikh Abdullah to consult Baba Saheb, the (then Law Minister) to prepare the draft of a suitable article to be included in the Constitution, Dr Ambedkar refused to oblige and said, “You want India to defend Kashmir, cater to its people, undertake its all-round
development and give Kashmiris equal rights all over the country. But, you do not want the rest of India and Indians (to have) equal rights in Kashmir. I am (the) Law Minister of India, I cannot betray my country.” On his refusal, Nehru got this controversial Article 370 drafted by Gopalaswami Iyengar, an IAS and a State Minister without portfolio. On December 27, 1947, Sardar Patel, when Article read by Mr. Iyengar, sharply opposed it, and even offered to resign. The matter also went to Mahatma Gandhi for rapproachment.
Coming back to the core issue of the GST, it may be concluded that it is going to unify the fiscal regime of the country and reinforce the federal unity of Bharat from Kashmir to Kanyakumari. It would enhance and improve tax compliance and raise
tax-GDP ratio.
It would plug the loopholes leading to tax evasion and generating black money, as all transactions in the value chain, from procuring raw material to final sale, would be on a common digital platform. As on date 140 countries have the GST system. France was the first country in 1954 to bring this system. The US has yet to adopt such a system. So, Bharat is now the largest democracy of the world, having a unified federal tax structure with a unitary federal authority, the GST council, as a constitutional authority representing the centre and all states of the nation.
(The writer is Vice-chancellor,
Pacific University, Udaipur)
