A Must For All SSB Aspirants GST Bill and Its Impact
The Good and Services tax (GST) Bill in Parliament comes 14 years after the idea was first given out and after a decade earlier the negotiations had began. First the issue was between the states as well as all the empowered group of finance ministers of various stated who had though about to make a compromise formula which was to make all the stakeholders agree. This was achieved not only just by hard amount of bargaining but also by the central government agreeing to remunerate the states for revenues they were expected to loose due to this new tax.
When it came down to passing of the GST Bill, a government had to be change and with now the NDA government in Power. It was time for now for the Congress, which had brought this Bill, to create hindrances for its final passage through the Parliament. The NDA government had now to seriously consider the Opposition’s Changes to the Bill because without its support, it would not have been possible to clear it in the Rajya Sabha. As we all know, the process the GST Bill requires a Constitution Amendment and needs ratification by a minimum of two-third majority in at least half of the state assemblies.
Now to The Question why this Bill is know as the Path Breaking Bill to the Indian Economy ?
Basically, the bill means thatt most of the existing taxes will be finished with and the would be replaced by a single-point levy. It would removes a huge amount of bureaucratic paper work. It is a single tax at the final point of the consumption alone. It would do away with the multiplicity of taxes at every level of the supply chain from the manufacturing to the sale point.
Among the many taxes that it finished off the onerous octroi tax that makes trucks make a beeline and wait for long duration on end while crossing over from one state to another. Thus in turn, will make India a large single market. Comparisons have started being drawn with that of the European Union since in the Indian federal structure states the levy has been according to multiplicity of taxes. This simultaneously pushes up the level of taxation on the common man to a very high level. By changing these large number of central and state taxes with a single tax/levvy, the burden of taxes on the people would come down which would be the Ideal Situation.
What makes the GST Tax even more important is the fact that 140 other countries have also brought in this single goods and services tax. Various reports have shown that not only have the increased the government revenues in most of these countries but there has been a increase in the gross domestic product of the countries also.
Now to the Next Question.
GST’s impacts on the Common Man ?
The first is the simplicity of operation for both industry and service providers. Manufacturers will find life much easier as they will only pay a single-point tax instead of the numerous excise, octroi and other levies that have to be paid at each tier of the production process. The second is ease of movement throughout the country as goods can be moved from state to state without having to stop to pay octroi. The third is that services will become more expensive as these are now being taxed at a lower rate than the proposed new levy. The fourth is that government revenues should increase as simplification is an incentive to pay tax rather than evade or avoid it. And finally, the ease of doing business will improve, which in turn should lead to more investment, thereby giving a push to economic growth.
This may all seem very fine but the fact is these positive developments would happen only if GST is implemented in an ideal manner. In its present avatar, the tax is being rolled out as a compromise formula. All stakeholders are hoping that it will be improved upon as time goes by. Some economists had even urged that GST should not be launched in this hybrid form as it will not achieve the objectives of a single uniform tax. In the current format it will not be a single tax as originally envisaged because of pressure from state governments. There will be a central tax, a state tax and a third inter-state tax. Not only that, key taxable items like alcohol and petroleum products have been kept out of the purview of GST. These are seen as huge cash cows for the Centre and states, so GST will not be applicable to them. As for the stated aim of keeping the tax rate at 18 per cent, it looks like a distant dream as yet. Studies have shown that some states have taxation levels as high as 27 to 28 per cent. No wonder lobbying has already begun to seek a rate of 22 per cent or higher. This is despite expert reports that show 18 per cent as a revenue neutral rate. In other words, at this rate the same revenue will be raised as in the past if applied to all goods and services.
Unresolved issues in GST Bill
GST Bill is pending in Rajya Sabha as BJP does not have the required majority to get it through. There are obvious benefits of GST but Congress is opposing on some issues in the current bill.
Congress wants that the tax rate should be fixed at 18%. A panel headed by Arvind Subramanian proposed 17-18 percent as the tax rate & National Institute of Public Finance and Policy (NIPFP) later proposed a rate of 23-25 per cent. So final rate is still undecided.
There is also a issue of revenue loss due to fixation of the tax rate.
The additional one percent tax to compensate the revenue loss of “manufacturing” states is not agreed by the Congress as it defeats the whole purpose of a uniform national market for goods and services. Some states are also demanding an adequate mechanism to compensate for the loss of revenue.
There is also a demand for a mechanism to resolve the disputes related to distribution of GST revenues. The Congress wants an independent dispute resolution mechanism to be headed by a retired judge.
Resolution of these issues can pave the way for the passage of GST Bill.