For a long time the GST Bill has been a topic of discussion mainly due to its power to revolutionize the entire tax system and also its ability to make life a lot simpler for taxpayers. But what exactly does this Bill talk about and what are its features?
On 29 March, 2017 the country came a little closer to this sales tax regime after the Lok Sabha agreed to pass four important GST Bills. This sets pace for the implementation of this wide-ranging tax development by the 1st of July, 2017. GST is believed to change the entire landscape of tax payment and charges in the country.
The four GST Bills that were passed are Central Goods and Services Tax Bill or CGST Bill, Compensation GST Bill, Integrated GST Bill and Union Territory GST Bill.
The very idea behind the possible implementation of the GST Bill is to unify taxes that we pay on goods and services into one single entity. Goods are essentially every product that is used by individuals and with the current tax system, citizens end up paying not just one type of tax for a product but many for just one product or service. The goal of this bill is to streamline these multiple taxes into one single system.
Central Excise Duty, Special Additional Duty of Customs, Additional Duties of Excise and Customs, Service Tax and other surcharges would all be replaced by Central Taxes GST. Similarly VAT Entry Tax, Purchase Tax, Entertainment Tax, taxes on betting, lotteries, state surcharges would be replaced by State Taxes GST.
According to Arun Jaitley, the Finance Minister of India, GST will have a significant impact in curbing excessive inflation. Services and products such as beauty, electronics attract different types of taxes depending on the state that the consumer is staying in, but the implementation of this bill will remove ambiguity. Another objective of this GST Bill is to remove the possibility of excessive taxation on individuals.
As of now, the State and the Centre calculate and levy taxes based not on the original cost of the service or product but on the layers of tax that are already being levied on the same service or product. This will have an adverse effect on the GDP or Gross Domestic Product of the nation. Through this bill, tax evasion will also be checked and business operations will become simpler. Essential products such as food grains and agricultural products will not be taxed so as to keep an eye on inflation.
GST Bill 2017 - Changes and Updates
However, unlike how most would have expected, the current four bills that have been passed do not put forth a single uniform rate across all categories. Instead a multi-tier tax slab has been put forth with four different tax rates i.e., 5%, 12%, 18% and 28%. The reasoning behind this is that luxury goods cannot be taxed at the same rate as daily necessities. Additionally, there would also be goods that are tax-exempted and zero-rated which implies that there are six categories of products and services under the bill. An additional cess on demerit goods such as aerated drinks, luxury cars and tobacco products would be levied. There will not be any tax on food products and petroleum products as of now. There has been no information as of yet regarding alcohol under GST.
The CGST Bill will allow the centre to impose and collect tax on intrastate supply for products and services. Collection of tax on supply that is inter-state will be taken care of by the Integrated Goods and Services Tax Bill 2017. Compensation to states due to loss of revenue that may be incurred as a result of GST implementation will be taken care of by the Compensation GST Bill while the Union Territory Goods and Services Tax will allow imposition and collection of tax on supply of products and services that are intrastate by Union Territories. Finance Minister Arun Jaitley has also said that additional tax will not be imposed in order to provide compensation to states and compensation will be paid to them within the existing framework.
Impact on the general public
According to this Bill, services will not be taxed over 18% and 5% tax will be levied on mass consumed products such as packaged salts and spices although food grains and other agricultural products are not going to be taxed. For most other products and services, the nearest tax slab will be applicable. Items generally used by the common man such as toothpaste, oil, soap and others will be taxed between 12% to 18% as opposed to the current rate which is over 20%.
Other products such as washing machines, refrigerators, air conditioners will be taxed at 28% as against the current rate of 30%-31%, thus making them cheaper. Luxury products such as luxury cars, aerated drinks and tobacco products would also attract a tax slab of 28%.
GST Bill would not be very helpful for individuals working in offices who receive subsidized products, services or eatables as more will have to be paid due to these items being placed under the tax net. This also includes membership at fitness clubs, taxi services or even health insurance. Small firms would also be hit as if a supplier of the company is not registered, then the purchaser will have bear the brunt of the GST on such a sale.
The government also plans to set up an authority in order to see if there is any reduction in the rate of tax to the consumer by companies after GST has been passed.
There are a number of pros and cons to this bill and a number of decisions yet to be made. However, it is suffice to say that the GST Bill would serve to simplify the somewhat complicated tax brackets that are currently in use in the country.
GST rate cuts implemented with only 35 items in highest tax bracket
The GST Council has revised the set of items included in the 28% tax slab by reducing GST Rates on 191 goods over a period of 1 year. There are only 35 items remaining in the 28% tax bracket, including automobiles, video recorders, yachts, tobacco, pan masala, cement, dishwashing machines, and video recorders. When GST was implemented in July 2017, there were 226 goods in this category.
Industry experts are of the opinion that the GST Council may implement further rationalisation of the highest tax slab so that only sin goods and super luxury items are included there.