GST Panel rejects proposal to include GST in Union List

• The Empowered Committee of State Finance Ministers on Goods and Services Tax (GST) has recommended substantial changes in the Constitutional Amendment Bill proposed by the government.

Changes recommended:

• The panel wants a mechanism for compensation to the States that will lose out on revenue due to the introduction of GST to be finalised and made part of the Constitutional Bill itself.
• In addition to this provision in the Constitution, the States have recommended that an independent mechanism be created for the purpose.
• The committee, headed by Jammu and Kashmir Finance Minister A.R. Rather, has rejected the Centre’s proposal to include alcohol and petroleum in the GST. It has also rejected the government’s proposal on powers to the Centre to notify ‘declared goods.’ A provision on declared goods would have empowered the Centre to lower GST rates on any item without consulting States.
• It has also recommended that the special status enjoyed by J&K under Article 370 be maintained even in the case of GST, so the proposed Constitutional amendment should not be applied to it.
• The committee has unanimously rejected the Centre’s proposal to enter GST in the Union List in the Constitution. “The Constitutional Amendment Bill already proposes a clause, 246A, empowering both the States and the Centre to levy the GST”.

Rational or Apprehensions behind rejection of the proposal:

• The States feel that when 246A is there, then the Centre should not have to incorporate GST into the Union List.
• Clause 246A proposes additional powers to the Centre to tax sale of goods and for the States (to tax services). At present, the Centre can tax services but not sale and distribution of goods. The States can now tax sale and distribution of goods but not services.
• Including GST in the Union List will imply that in case of any disagreement between the Centre and the States, Parliament’s decisions will be overriding and binding on the States.

All you need to Know about GST (and its issues):

• Goods and Services Tax — GST — is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level.
• Through a tax credit mechanism, this tax is collected on value-added goods and services at each stage of sale or purchase in the supply chain.
• The system allows the set-off of GST paid on the procurement of goods and services against the GST which is payable on the supply of goods or services. However, the end consumer bears this tax as he is the last person in the supply chain.
• Experts say that 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.

What are the benefits of GST?

• Under GST, the taxation burden will be divided equitably between manufacturing and services, through a lower tax rate by increasing the tax base and minimizing exemptions.
• It is expected to help build a transparent and corruption-free tax administration. GST will be is levied only at the destination point, and not at various points (from manufacturing to retail outlets).
• Currently, a manufacturer needs to pay tax when a finished product moves out from a factory, and it is again taxed at the retail outlet when sold.

 How will it benefit the Centre and the States?

• It is estimated that India will gain $15 billion a year by implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth. It will divide the tax burden equitably between manufacturing and services.

 What are the benefits of GST for individuals and companies?

• In the GST system, both Central and State taxes will be collected at the point of sale. Both components (the Central and State GST) will be charged on the manufacturing cost. This will benefit individuals as prices are likely to come down. Lower prices will lead to more consumption, thereby helping companies.

 Why are some States against GST; will they lose money?

• The governments of Madhya Pradesh, Chhattisgarh and Tamil Nadu say that the information technology systems and the administrative infrastructure will not be ready by April 2010 to implement GST. States have sought assurances that their existing revenues will be protected.
• The central government has offered to compensate States in case of a loss in revenues.
• Some States fear that if the uniform tax rate is lower than their existing rates, it will hit their tax kitty. The government believes that dual GST will lead to better revenue collection for States.
• However, backward and less-developed States could see a fall in tax collections. GST could see better revenue collection for some States as the consumption of goods and services will rise.

 Courtesy- http://gstindia.com/