GST bill is perhaps one of the best examples of integrated and cooperated structure of the states ten years before the effort started to amend the constitution for the purpose of bringing a drastic change in the Goods and Service Tax arrangement in India. In 2006 year’s budget, the Finance Minister P. Chidambaram had declared the enforcement of GST bill which had failed to gain the confidence of the States. Now, in 2016 the same bill after constitutional amendment, has been profiled as a big reform in Indian Tax system by the Finance Ministry of the current BJP Government. The bill of amendment of constitution had been passed through Lok Sabha (Lower House) in the month of May, 2015. The same had been passed through Rajya Sabha (Upper House) at the beginning of August, 2016. This is the 122th amendment which has been supported by 203 MPs who were present.
It is evident that the same pattern of tax structure will be enforced after introduction of GST which has already been considered as ‘One county -one tax ‘ or ‘One country -one market’. This is the opinion of almost all persons that Indian economy will enjoy the benefit due to smooth path of the transportation of goods and services. In one calculation, Gross Domestic Production will increase by more than 1.5% due to this arrangement. On the other hand, there may be a chance of inflation, especially in the area of services in first few years due to restructuring of different tax rates. But everything will take place after one or two years almost that is after the enforcement of GST in India.
But Congress Party with oppositions have brought two conditions. Firstly, the lower rate of tax must be ensured after the enforcement of GST. The logic in favor of this condition has been made by the former Finance Minister of the past UPA Govt. P. Chitambaram that
Chief Financial Advisor himself had proposed the tax rate of 18% on most of the goods. Lower rate of tax would be levied on essential commodities. But much higher tax rate would be levied in case of alcohol, consumer goods, particularly in case of imported car. That is why the oppositions have claimed a fixed tax rate of 18%. Secondly, GST bill cannot be presented as Finance Bill in parliament which indicates that GST bill must be presented in both upper and lower houses. The logic of present Finance Minister is that already there is a tax rate of 27% on 65 to 70% of goods. After inclusion if ses it amounts of almost 30%. Under GST arrangement there will be no levy of tax on!!!Tax. It will be difficult to avoid tax because tax collection system will be efficient. But it is better not to fix any tax rate rather this responsibility may be borne by the GST counsel constituted by the Finance Ministers of all State Govts and Central Govt. As per the arrangement of GST, the bill has to be presented to Lok-sobha after the bill of amendment of constitution have been passed through Rajya-sobha because some changes have been taken place in that bill in Rajya-sobha. Then it must be passed through at least 15 assemblies. Only then, the bill will be converted into Act. The next step will be the preparation of GST Counsel which will start discussion regarding determination of tax rates.
Tax system in India has not yet become progressive and simplified. It is still complex. There are three stages of collection of taxes and duties. In case of production -production excise duty, in case of sales -sales tax, now VAT and in case of profit arise from the sale of goods produced- Income tax will be levied. Under section 266 of the constitution , the responsibility and right of determination of tax rate , withdrawal of tax @or lowering of tax rate , collection of tax , have been clearly directed . It has been states there that the responsibility and right to charge and determine the rate of Excise Duty on production and besides that , rate of Income Tax, will be borne under the jurisdiction of Central Government while on the other hand , while responsibility and right to determine VAT will be lied upon State Governments. As a result most of the revenues will belong to Central Government where the stake of Sates are very limited. To reduce this differentiation, there is a convention of constitution of Finance Commission at every 5 year’s interval. As per the directives made by commission, every state will get a part of the revenues of Central Government, though excluding surcharge and similar extra taxes levied by Centre, for development of their state. Despite of that, as per the financial stability, the Centre is always much stronger that states. There are 29 types of VAT in 29 states. Since the source of revenue to the state is only sales tax or VAT, they charge it per their financial strength, idealistic trend and requirement of finance. Here lies the complexity. The corporates demand a smooth and fixed rate of tax in all states which can boost their investment in state.
But their demand was unable to be fulfilled against the objections of the states. After the advent of liberalized economy in India there was always an opportunity to the corporates to invest in their different projects in different states and since then they started claiming a favorable and common tax rate. Always there was a principle of main two political parties to satisfy the corporates in terms of fulfilling their demand as much as possible. Corporates always have demanded the interference of Central Government in determining a common VAT rate but there was no provision in constitution of united common tax system. After amendment of Sales Tax Act, this need have been enforced and corporate investment made the interference of Centre in determining VAT or sales tax, ensured. Now the BJP government which are looking more corporate prone, had made the GST bill more acceptable to them. But the problem is if the bill is even harmful to some states which needs substantial amount of finance for the development, same will not be unconstitutional. Have Constitution conferred the right to interfere to anybody into one of the basic and fundamental right of states. Support of GST bill is raising this question. Amendment of Constitution may or may not the best answer. What will be the result ultimately? We are to wait for the future.
*GST IMPACT ON VARIOUS SECTOR.*
1) *BANKS* – Current service tax 15% now after GST 18% Negative.
2) *CONSUMER STAPLES* current tax rate 22% know after GST it’s 18% .
Positive for – Asian paints,Dabur,HUL,EMAMI
NEGATIVE for ITC & UNITED BEVERIES.
3) *CONSUMER DISCRETIONARY* current 15% after GST 18%
NEGATIVE
4) *MEDIA* – current Tax 15% service tax and 7% entertainment Tax by State’s know After GST it will be 18%
POSITIVE
5) *TELECOM* current Tax 15% After GST 18% may see marginal dip in consumption as tax rise from 15% to 18%
NEGATIVE
6) *AUTO INDUSTRIES* current Tax 27% after GST it will be 18% .
POSITIVE
7) *METALS* – current TAX 18% after GST 18% no major impact
8) *CEMENT* – current Tax 27% altogether after GST it will be 18%
POSITIVE.
9) *PHARMA* – current Tax 15% after GST it will be 18% .
NEGATIVE
10) *REAL ESTATE* – 15% to 16% Stamp duty, Current duty approx 7%. NEGATIVE for real estates.
11) *TRANSPORTATION* – majorly benefits to logistics sector no impact of GST
POSITIVE
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