The Centre for Comparative Studies, one among the three specialised study centres of the Centre for Public Policy Research (CPPR) hosted a talk by Mr. Aneish P Rajan IRS on Goods and Services Tax; its concept and its concerns. The talk was organised in light of the highly  anticipated ‘Goods and Services Tax’ Bill being proposed and set for approval during the ongoing winter session of parliament.

Mr. Aneish P Rajan IRS, Deputy Director, Kerala Directorate General of Central Excise Intelligence, shared his thoughts on the concept of the GST Bill and its pros and cons to the different beneficiaries when brought into practice.

The Goods and Services Tax (GST) is a national value-added tax, which, if implemented, will replace the 16 different indirect taxes currently levied. The unified GST was announced in the budget speech of 2006-07 by the Union Finance Minister, to the effect that GST would be introduced from April 1, 2010. It had been further extended to April 1, 2012 after the then UPA Government ‘re-tabled’ the bill with a few modifications. The current BJP government is looking forward to rolling out the GST, starting April 2016.  However, there is uncertainty whether the GST can be rolled out as scheduled since the Bill is currently pending approval in the Rajya Sabha.

Mr. Rajan, commenced his presentation with a short description of the Articles that the Bill sought to amend. The proposed legislation seeks to amend Article 246, which deals with the distribution of Legislative power between the Centre and the State. It would also   advertently amend Article 265, which distributes the power of taxation between the Centre and the States. The necessity  of the GST arises  from the great diversity and complexity of indirect taxes that are currently being levied. The sheer number of taxes leads to ambiguity, lack of coherence and prove  detrimental to all stakeholders because of its cascading effects.

Experts say that the GST is likely to improve tax collections and boost India’s economic development by breaking tax barriers between states and integrating India through a uniform tax rate. The Kelkar Committee Report in 2009 recommended the proposed implementation of the GST to increase the country’s GDP. India’s Finance Minister, Arun Jaitley argues that the implementation of GST will help to add two per cent to the national GDP.

Mr. Rajan went on to explain the fundamentals of GST, what its objectives are and also its merits and its demerits. The GST, in simple terms, is a comprehensive indirect tax on production, sale and consumption of goods and services throughout India. This means when a person buys something, he will be required to pay only one tax. The GST can be termed as a ‘Destination Tax’ because the final tax is levied by the destination state, the state where the good is ultimately consumed. One of the main implications of this process is that, only the consumer states will benefit. Naturally, objections were raised by the manufacturing states to GST in 2011 which led the then Finance Minister, Pranab Mukherjee, to announce a corpus fund to compensate the States for any losses incurred over a period of 5 years from roll out.

The GST is expected to be to charged at a percentage of around 14-16 %.  Its main objectives are to tax at lower rates, create a common market, widen the tax base, minimize exclusions and exemptions, equally distribute the tax burden between the manufacturing and the service sectors, reduce taxation and compliance costs and enhancing efficiency and productivity throughout the supply chain.

The GST is not a single tax, but a unified tax process. It has a dual structure, the Central GST (CGST) and the State GST (SGST), which would be levied by the Centre and the States respectively. In addition a third type of tax, the Integrated GST (IGST) will also be levied on inter-state trade. Canada and Brazil also follow a dual GST system similar to the system proposed for India. However, in India, the GST system has proposed to give the states autonomy to fix their own tax rates while the tax at the centre would remain constant throughout the nation.

There are several ‘perceived’ benefits of the GST. One benefit is that the tax base would be widened and the country would become a single, unified market. The benefits to trade would be a reduction in the multiplicity of taxes, mitigation of the cascading tax effect and a simplified tax regime. To the Government, the benefits are a simpler tax system, a broader tax base, improved compliance mechanism, standardized revenue collections and an efficient use of resources.

The speaker subsequently described the composition of the GST Council and its functions. The GST Council would comprise the State Finance Ministers, Ministers of State for Finance and the Union Finance Minister. It would decide and make recommendations on the rates of taxation and the goods that would be taxed. The GST Council is constituted in such a way that Federalism would be upheld.

GST is applicable on all goods and services alike, excluding certain items like alcohol, tobacco and petroleum products.  However, ‘there is a rationale behind the exemption of certain goods from the purview of the GST’, explained Mr. Rajan.

Though the model adopted may not be the ideal one, considering the complex nature of Indian economy and polity the proposed bill would be a landmark legislation.

Ms. Pooja Sundaresh, Managing Associate for Centre for Comparative Studies, presided over the meeting.

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Pooja Sundaresh was Managing Associate of the CPPR Centre for Comparative Studies.

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