Government moves bill to roll out GST; sets in motion plans to launch tax reform from April 2016

NEW DELHI: The government moved a Constitutional Amendment Bill in the Lok Sabha to roll out goods and services tax (GST), setting in motion plans to launch this ambitious tax reform from April 1, 2016. The Bill incorporates a number of provisions to get the support of states whose opposition had held back what finance minister Arun Jaitley called ‘biggest tax reform since 1947’ for almost five years.
The previous UPA government had planned to roll out GST — which will replace the plethora of indirect taxes levied by states, Centre and local bodies — on April 1, 2010. The government hopes to get the Bill passed in the Budget session and does not see it being referred to the standing committee on finance. “GST will ensure seamless transfer of goods and services, absence of Inspector Raj and no tax on tax,” Jaitley told reporters soon after tabling the 122nd Constitution Amendment Bill in the Lok Sabha adding that it was win-win for all stakeholders.

“The speed with which the government has introduced the Bill in Parliament shows the seriousness attached with this important reform,” said Pratik Jain, partner, KPMG India, welcoming the flexibility shown by the government in accommodating states concerns. Petroleum goods will be part of the GST, but they will be levied at zero rate, leaving states with the power to levy VAT while Centre will have the right to levy excise duty.



It will be fully subsumed in the GST from the date decided by the GST Council, a body having representation of Centre and states. States will have a two-third vote in the council and the Centre one-third, and all decisions will have to be passed by a 75% majority, indicating that every issue would need a convergence of views and neither states nor Centre will exercise undue power.

The states, however, will continue to levy taxes on alcohol as is the practice now. Entry tax will be subsumed in the GST, helping facilitate creation of a national market by removing boundaries created by this tax levied by some states. However, since some states fear losing revenues, the government has proposed 1% extra levy for states for a period of two years. Jain said this was a distorting levy and hoped the government would address it.

“Any origin-based taxation is fundamentally against the principles of GST and would be barrier to a common market which GST seeks to achieve,” he said. The Centre has also spelled out the compensation details in the Constitutional Amendment Bill itself and FM assured that the promised sales tax compensation will be released by fiscal-end.