Politics

This is what GST means to you

K SrinivasanAugust 4, 2016 | 14:42 IST

For the understanding of the common man, let us put in a nutshell what the GST is all about.

Goods manufactured were taxed by the Centre and goods traded were taxed by the states. Services came into the picture to be taxed by the Centre from 1994. Now, we have goods and services taxed by the Centre and supplies taxed by the states.

It has been the experience for three decades that the above practice gives rise to multiple taxes, tax on taxes, interstate taxes and so on.

On top of it, taxes paid by trade on purchases were not earlier allowed to be set off against sales. So the taxes paid on purchases had to be loaded into cost of sales.

This led to two situations a) to cost push inflation and b) cascading of taxes, for taxes loaded get taxed again and again without any facility of set-off.

The above anomalies led to introduction of modified value added tax by the Centre and value added tax by the states, popularly known as Modvat/Cenvat and Vat respectively.

By all this, it meant and provided for taxes paid at the stage of procurement of inputs/goods to be set-off against clearance of finished consumable commodities/goods.

The reforms from 1986 to 2004 paved the way for relief from input-taxed conditions and the possible cost push inflation triggered by non-availability of input tax credit, now known as ITC.

As most people will tell you, economic reforms are continuous and seamless. The Indian economy had felt it had come of age to try out an unified tax regime, internationally known as VAT/GST.

Goods and services, instead of being taxed at the point of origin or production, were sought to be taxed at the point of destination or consumption. That is why VAT/GST is also popularly known as a destination-based consumption tax.

What is the chief advantage of this kind of a new taxation?

A major tax reform needs two-thirds majority in both Houses of Parliament. 

There are numberless taxes and cesses levied by the Union and the Federation of States for collection of each one's revenue.

This mindless multiplicity of taxes led to tax competition between the Centre and states and between states. This is not good for the economy.

Therefore, it was felt that a unified tax system known as VAT/GST where both the Union and states were enabled by the Constitution to have concurrent jurisdiction over the same subject matter of taxation, was necessary.

This was brought about by the introduction of the 122nd Constitutional Amendment Bill 2014, which got past the Lok Sabha but got stuck at the Rajya Sabha since this kind of amendment to harbinger a major tax reform needs two-thirds majority in both Houses of Parliament.

Through persistent and steady parleys, the government managed at last to get the majority on board to pass the GST Bill on Wednesday, August 3, which is a milestone in Indian fiscal history.

There are still two hiccups, subject to which the Finance Bill 2014 had got the assent of the Opposition - the Congress -- that the rate of GST must be capped at 18 per cent and that other connected Bills to operationalise the GST must not take the short cut of being Money Bills to avert the need for clearance by the Rajya Sabha, where the ruling government lacks majority, unlike in the Lok Sabha.

Also read: Why the Goods and Services Tax needs to be capped

The short overtures of the government in the wake of the passage of the GST Bill in the Rajya Sabha did not have committed overtones on the two main points insisted upon by Congress Speaker P Chidambaram, former finance minister - the 18 per cent rate cap and that subsequent Bills to take the legislation forward be Finance Bills rather than Money Bills.

This means the Centre will need the Congress's support at every stage of implementation of the GST.

It looks like a healthy check and balance to any government in the interest of the economy.

The last two years of delay only made the rough ends of the reform smoother. Let us hope and pray the GST gets implemented soon in a swift manner.

Let the Centre get its due share of CGST and the State its SGST and let the Inter-State GST do the moderation to balance the equation between the two, to end the tax competition leading to constant inflation in the country.

Let GST bring down prices and push up prosperity and living standards of the people of India.

Last updated: September 22, 2017 | 20:34
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