GST Council in place: After the President of India Mr Pranab Mukherjee approved the 122nd constitutional amendment bill on the 8th of September; the 101st Constitution Act 2016 was notified. The Article 279A of the amended constitution required the GST council to be formulated by the President within 60 days. The Article 279A was made effective from Sep 12, 2016 vide a notification issued two days earlier. Using the powers entrusted by the Article 279A, the President has constituted the much awaited GST council already. The council has the Union Finance Minister Mr Arun Jaitley at its helm and ministers nominated by the state governments as members. The first meeting of the council is to be held on Sep 22-23.
The work out: The pressure is now on the GST council to thrash out the GST rate, exemption item list, and other important aspects of GST within two months of the first meeting. The Central government in the meanwhile would be working on the IGST and CGST laws to be tabled in the winter session of the Parliament in November. The State governments will focus on the SGST. All these timelines and targets have to be met if the GST rollout from 1st April 2016 has to become a reality.
The rate: To keep the GST rate below 20 per cent the government needs to work out a strategy. At present, the revenues from the taxes on goods and services are a resultant of the 27 per cent tax rate on 70 per cent of the items. This revenue needs to be protected as the government is committed to supporting the states on the revenue shortfall for 5 years from the GST implementation date. One way is to enlarge the tax base substantially in order to make up the deficit. The other option that came up was Gold taxation. In the last year a government committee headed by the Chief Economic Advisor, Mr Arvind Subramanian had proposed taxation on precious metals including Gold at rates ranging between 2 to 6 per cent. At present, the taxation is between 1 to 1.6 per cent. Gold taxation has its pros and cons and the government needs to tread carefully on this path.
GST for the people: The GST reform is expected to have a substantial impact on the manufacturing sector as well as on the ease of doing business. As a consumer of goods, we pay many taxes on the goods that we buy. What is visible to us is the final VAT. The invisible include the excise duty, Octroi, and many other such taxes that have been paid by the manufacturer and are a part of the final cost. The GST is likely to subsume all these taxes and one final rate of tax would be payable by the buyer. Each member of the supply chain in the manufacture of the goods will be paying the tax on the value addition. Logically speaking goods should become cheaper if the GST rate is pegged below 20 per cent but a lot will depend on how the GST compliance pans out. The one and only tax in the form of GST will definitely be liked by the MNCs as they will find it easier than figuring out the multitude of taxes that have to be paid at present. The ease of doing business is going to improve.