Still Searching for the GST

Introduction of the GST Bill in Parliament does not mean all the contentious issues have been sorted out.

While there has never been any disagreement between the central and state governments on the benefits of a comprehensive Goods and Services Tax (GST) to replace the complex indirect tax system currently in operation, differences on a number of issues have meant that a proposal announced in the 2007-08 Budget has taken more than seven years to fructify into another legislative bill on GST. The introduction of the Constitution (122nd Amendment) Bill, 2014 in the Lok Sabha in the winter session to facilitate introduction of the GST regime from 1 April 2016 indicates some progress. But given past experience, one is uncertain about what could finally happen to the bill, especially because there remains an ambivalence on a number of contentious issues, including the all important one of the rate of the new tax. If in spite of the unresolved issues another bill has been drafted, the expectation seems to be that, however imperfect, enactment of the legislation would simplify the tax system, end the cascading effect of current taxation, foster development of a common domestic market, and result in revenue buoyancy and higher growth of the economy.

The 2014 bill visualises a dual GST that would be levied both by the centre and the states on an overlapping tax base. It provides simultaneous power to union and state legislatures to legislate on the GST. The centre would levy a Central Goods and Services Tax (CGST), the states a State Goods and Services Tax (SGST), and the centre would levy and collect the Integrated Goods and Services Tax (IGST) on all interstate supply of goods and services, and distribute the IGST proceeds among the states. The GST Bill seeks to create a system of seamless flow of input tax credit from one state to another. A GST Council will be established, with the union finance minister as the chairman and state finance ministers as members. The critical roles of the council, as envisaged, will be to make recommendations on tax rates, exemptions and threshold limits, and resolve disputes.