On July 1, 2017, India ushered in the Goods and Service Tax (GST), the country’s biggest indirect tax reform since the economy opened up 25 years ago. The policy aims to streamline the taxation structure in the country by doing away with various taxes imposed by states and Centre and introducing a unified tax system. A year on, here is a look at the journey so far.
What is Goods and Service Tax?
GST is a destination-based tax and is levied at the final consumption point. Under the new tax regime, the final consumer of the goods and services will have to bear the tax charged in the supply chain. Manufacturers and dealers can later claim a refund. As a result, a gamut of indirect taxes like excise duty, VAT, service tax, luxury tax etc are eliminated under the system. Businesses with an annual turnover of Rs. 20 lakh (Rs.10 lakh for special category states) are exempted from GST.
When were the bills passed?
Four bills related to the GST were tabled in the Parliament. The Central GST, Integrated GST, Union Territory GST and the Compensation Law were passed in March in Lok Sabha. The Upper House passed the bills in April.
CGST Bill: This is related to the levying and collection of GST on supply of goods and/or services within the boundaries of a state.
IGST Bill: The IGST bill deals with the supply of goods and/or services between different states.
Union Territory GST Bill: The UTGST pertains to the supply of goods and services in the Union Territories.
The Compensation Bill: The Compensation bill will compensate the states for loss of revenue which might occur due to the implementation of GST for a period of five years.
The historic midnight launch
Prime Minister Narendra Modi, former president Pranab Mukherjee, Arun Jaitley and other leaders launched GST on the midnight of June 30 at a function inside the Parliament’s Central Hall. “GST is a transparent and fair system that prevents black money and corruption and promotes new governance culture,” PM Modi said in his speech, adding that while the new policy may cause minor problems, people will adjust soon. PM Modi called GST as ‘Good and Simple Tax.’
Calling the tax structure unfair to small traders and business, the Congress, TMC and Left parties boycotted the launch. Former Prime Minister Singh was also sent an invitation but he declined. Opposition parties including the JD(U), the NCP, the BJD, the Samajwadi Party and Janata Dal (S) participated in the launch.
Various slabs of GST
The GST Council that includes Union Finance Minister and his counterparts from different states, rolled out four different slabs for the new tax regime. The slabs have been set at 5 per cent, 12 per cent, 18 per cent and 28 per cent for different items or services.
Essential items like food, milk, flour, eggs are taxed at zero rate. Essential items are pegged at 5 per cent while luxury goods are taxed at 28 per cent. After the introduction of GST, the council has shifted multiple items from the top tax bracket of 28 per cent to 18 per cent to shore up public spending and revive investor sentiment.
States that opposed Goods and Service Tax
Unhappy with the slabs, multiple traders across the country protested the tax regime. Textile traders and diamond traders took to the streets to voice their protests. Sweet shop owners in West Bengal had also protested against the imposition of five per cent GST on products
Jammu and Kashmir was the last state to join the tax regime. The Bill was passed amid strong reservations by the Opposition who were of the view that GST would undermine the special status of Jammu and Kashmir. The Bill was moved in the Assembly after a Presidential Order assured that J&K’s special status is guaranteed under Article 370 of the Constitution.
Among other states, West Bengal and Kerala were most vocal in their protest against the new tax structure. While Mamata Banerjee said that the present format does not support the “unorganised sector”, Pinarayi Vijayan slammed the government for “ill-planned implementation of GST.”
Items excluded under GST
Alcohol and petroleum products have been kept outside the purview of GST for the moment. Petroleum Products such as petroleum crude, motor spirit (petrol), high-speed diesel, natural gas and aviation turbine fuel etc are charged as per the previous tax structure. GST is also not applicable on electricity. The government is now, however, mulling to bring petrol under GST in order to combat the rising fuel prices. “I have already categorically stated this issue several times. The present oil price hike is due to three main factors — hike in the international price of crude, fluctuation in the dollar and Indian currency ratio and some of the tax issues are also there. For long-term solutions, government of India is planning for a holistic strategy. Bringing petroleum products within the ambit of GST is one among them. We are sensitive, let’s see how things are unfolding,” Minister of Petroleum and Natural Gas Dharmendra Pradhan said.
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Govt revises GST slabs
In November last year, the government slashed tax rates on as many as 177 items of daily consumption to 18 per cent from 28 per cent. In the process, the GST Council trimmed the list of items in the top 28 per cent GST bracket to just 50 from 228.
Under the new rules, both AC and non-AC restaurants will attract 5 per cent GST, unlike the previous 12 per cent. However, restaurants in starred-hotels that charge Rs 7,500 or more per day room will be levied 18 per cent GST.
Chewing gum, chocolates, coffee, custard powder, marble and granite, dental hygiene products, polishes and creams, sanitary ware, leather clothing, artificial fur, wigs, cookers, stoves, after-shave, deodorant, detergent and washing powder, razors and blades, cutlery, storage water heater, batteries, goggles, wrist watches and mattress are among the products on which the tax rate has been reduced from 28 per cent to 18 per cent.
Wire and cables, furniture, mattress, trunk, suitcase, detergents, shampoos, hair cream, hair dyes, makeup, fans, lamp, rubber tubes and microscope are some other items on which tax rate has been cut from 28 per cent to 18 per cent.
First GST Council meet
GST Council is the key constitutional body for making recommendations to the Union and State Government on issues related to Goods and Service Tax. The GST Council is chaired by the Union Finance Minister and it comprises of the Union State Minister of Revenue and Finance and Ministers in-charge of Finance or Taxation of all the States.
In its first meeting, held in September 2016, the Centre and states agreed on a timetable for deciding on the tax rate and completion of legislative work. They decided to exempt businesses with an annual turnover below Rs. 20 lakh out of the GST net. The main focus areas of discussion remained on rates, threshold limit and division of power between states and Centre. The Council has held 27 meetings till date to deliberate on various aspects of GST.