Despite the demonetization drive going on in the country, the government is pushing for the passage of the GST laws in the winter session of the Parliament which is currently on. The opposition is up in arms against demonetization and is creating scenes on the floor of the Parliament leading to the adjournment of the house almost on a daily basis. This disruption is leading to a loss of the working hours of the government machinery. Efforts are being made to restore normalcy through debates and discussions so that the house can function normally and work can progress.
The government does not want to lose its initiative to launch the GST from April 1, 2017. The centre has come out with the drafts of three laws which include the GST law, IGST law and the compensation law. The GST council is to meet on the 2nd and 3rd of Dec and these drafts are to be discussed in the meet. Once approved the laws are to be put for voting in the Parliament. The laws have to be passed by both the houses of the Parliament in order to complete the process.
The GST council in its earlier meetings have decided on the GST tax rates of 5, 12, 18 and 28 per cent. The draft GST law states that the centre will notify the rates based on the recommendations made by the GST council but the maximum allowed tax rate would be 28%. The highest rate would be applicable on the luxury items and sin goods. Besides the high tax rate, these goods will also attract a cess in order to create a corpus of INR 50,000 crore for compensating the states for the loss of revenue. This cess will be known as the GST compensation cess.
The states will be compensated for a period of five years from this corpus and any balance that remains at the end of five years would be distributed equally between the centre and states. This has been stated in the draft GST compensation law brought out by the centre.
The compensation payable to the states would be tentatively calculated at the end of each quarter and released. The final calculation would come at the end of the financial year. In case the compensation made to the state is found to be higher, it will be adjusted in the next financial year. The gap in the revenue would be calculated as the difference between what the state has actually earned in the GST regime and what it would have earned in the old regime after taking into account an increase of 14 per cent over the base year of 2015-16.
The definition of goods that found to include the securities has now been corrected in the revised draft. This comes as a big relief to the stock markets and the concerned brokers as GST will not be payable on the sale and purchase of securities. However, the service sector concerns of centralised registration and confusion on the place of supply rules have still not been adequately addressed.