Ans. Full form of GST is Goods and service tax.
Ans. Goods and service tax (GST) is a comprehensive tax levy on manufacture, sale and consumption of goods and service at a national level, leviable at each point of sale or provision of service. This is how what consumption is taxed in most developed countries.
Ans. GST eliminates present Tax on Tax system, remove incompleteness of present CENVAT and state VAT and expects overall economic growth of India.
Ans. There was a burden of "tax on tax" in the pre-existing Central excise duty of the Government of India and sales tax system of the State Governments. The introduction of Central VAT (CENVAT) has removed the cascading burden of "tax on tax" to a good extent by providing a mechanism of "set off" for tax paid on inputs and services up to the stage of production, and has been an improvement over the pre-existing Central excise duty. Similarly, the introduction of VAT in the States has removed the cascading effect by giving set-off for tax paid on inputs as well as tax paid on previous purchases and has again been an improvement over the previous sales tax regime.
But both the CENVAT and the State VAT have certain incompleteness. The incompleteness in CENVAT is that it has yet not been extended to include chain of value addition in the distributive trade below the stage of production. It has also not included several Central taxes, such as Additional Excise Duties, Additional Customs Duty, Surcharges etc. in the overall framework of CENVAT, and thus kept the benefits of comprehensive input tax and service tax set-off out of the reach of manufacturers/ dealers. The introduction of GST will not only include comprehensively more indirect Central taxes and integrate goods and services taxes for set-off relief, but also capture certain value addition in the distributive trade.
Similarly, in the present State-level VAT scheme, CENVAT load on the goods has not yet been removed and the cascading effect of that part of tax burden has remained unrelieved. Moreover, there are several taxes in the States, such as, Luxury Tax, Entertainment Tax, etc. which have still not been subsumed in the VAT. Further, there has also not been any integration of VAT on goods with tax on services at the State level with removal of cascading effect of service tax. In addition, although the burden of Central Sales Tax (CST) on inter-State movement of goods has been lessened with reduction of CST rate from 4% to 2%, this burden has also not been fully phased out. With the introduction of GST at the State level, the additional burden of CENVAT and services tax would be comprehensively removed, and a continuous chain of set-off from the original producer's point and service provider's point up to the retailer's level would be established which would eliminate the burden of all cascading effects, including the burden of CENVAT and service tax. This is the essence of GST. Also, major Central and State taxes will get subsumed into GST which will reduce the multiplicity of taxes, and thus bring down the compliance cost. With GST, the burden of CST will also be phased out.
Thus GST is not simply VAT plus service tax, but a major improvement over the previous system of VAT and disjointed services tax - a justified step forward.
Ans. The bill introduces a new article that says Parliament, and, subject to some conditions, the legislature of every state will have power to make laws with respect to goods and services tax imposed by the Union or the state.
Ans. The Constitution provides for delineation of power to tax between the Centre and States. While the Centre is empowered to tax services and goods up to the production stage, the States have the power to tax sale of goods. The States do not have the powers to levy a tax on supply of services while the Centre does not have power to levy tax on the sale of goods. Thus, the Constitution does not vest express power either in the Central or State Government to levy a tax on the 'supply of goods and services'. Moreover, the Constitution also does not empower the States to impose tax on imports. Therefore, it is essential to have Constitutional Amendments for empowering the Centre to levy tax on sale of goods and States for levy of service tax and tax on imports and other consequential issues.
As part of the exercise on Constitutional Amendment, there would be a special attention to the formulation of a mechanism for upholding the need for a harmonious structure for GST along with the concern for the powers of the Centre and the States in a federal structure.
Ans. India is a federal country where both the Centre and the States have been assigned the powers to levy and collect taxes through appropriate legislation. Both the levels of Government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources. A dual GST will, therefore, be in keeping with the Constitutional requirement of fiscal federalism.
Ans. The Empowered Committee has decided to adopt a two-rate structure - a lower rate for necessary items and items of basic importance and a standard rate for goods in general. There will also be a special rate for precious metals and a list of exempted items. For upholding of special needs of each State as well as a balanced approach to federal flexibility, it is being discussed whether the exempted list under VAT regime including Goods of Local Importance may be retained in the exempted list under State GST in the initial years. It is also being discussed whether the Government of India may adopt, to begin with, a similar approach towards exempted list under the CGST.
For CGST relating to goods, the States considered that the Government of India might also have a two-rate structure, with conformity in the levels of rate with the SGST. For taxation of services, there may be a single rate for both CGST and SGST.
The exact value of the SGST and CGST rates, including the rate for services, will be made known duly in course of appropriate legislative actions.
Ans. Taxes/Duties Likely to be subsumed in GST
Central excise duty under Central Excise Act, 1944
Sales Tax/Value Added Tax (VAT)
Additional excise duties – Under Additional Duties of Excise (Goods of Special Importance Act, 1957
Excise Duty under Medicinal & Toiletries Preparation Act, 1955
State excise duty
Service Tax under Finance Act, 1994
Additional Customs Duty (Countervailing Duty - CVD)
Taxes on lottery, betting & gambling
Special Additional Duty of Customs (SAD)
Entry tax (not in lieu of Octroi)
Surcharges (e.g. national calamity contingent duty)
Cesses (e.g., Cess on rubber, Cess on tea etc.)
Central Sales tax (to be phased out)
Taxes/Duties not likely to be subsumed in GST
Basic Customs Duty
Taxes on Liquors
Excise Duty on Tobacco products
Toll Tax/ Road Tax
Taxes on petroleum products
Purchase tax on food grains
Specific Central Cess like Oil Cess etc.
Taxes on motor spirit & high speed diesel
Tax on Consumption or Sale of Electricity - Not certain
Stamp Duty - Not certain
Ans. GST will be levied on buyers of goods and services, or where the service is consumed. This means big consumer states such as Uttar Pradesh, West Bengal and Kerala will get a high share of the taxes. To compensate for this, manufacturing states such as Tamil Nadu, Maharashtra and Gujarat fear that they will lose out on revenues. The bill provides for 1 percentage point extra tax on goods for at least two years. This extra revenue will go to the state from which the goods originated, or where it was manufactured.
Ans. As per the proposal the following are exempt from GST – a) Supply of Alcoholic Liquor for human Consumption. b) The GST Council shall however revisit whether the exemption is to be extended to the following: (i) Petroleum crude (ii) High speed diesel (iii) Motor spirit (petrol) (iv) Natural gas (v) Aviation turbine
Ans. The Constitution imposes certain restrictions on states on the imposition of tax on the sale or purchase of goods. The Bill amends this provision to restrict the imposition of tax on the supply of goods and services and not on its sale.
Ans. The President would be required to constitute a Goods and Services Tax Council within sixty days of the Act coming into force. The GST Council shall aim to develop a harmonized national market of goods and services.
However, as contemplated earlier, the new Bill has deleted the provisions that creates a Goods and Services Tax Dispute Settlement Authority.
Ans. The GST Council is to consist of the following three members: (i) The Union Finance Minister (as Chairman), (ii) The Union Minister of State in charge of Revenue or Finance, and (iii) The Minister in charge of Finance or Taxation or any other, nominated by each state government.
The bill allows for compensation for revenue loss to states for a period of 5 years.
Ans. The present forms of CENVAT and State VAT have remained incomplete in removing fully the cascading burden of taxes already paid at earlier stages. Besides, there are several other taxes, which both the Central Government and the State Government levy on production, manufacture and distributive trade, where no set-off is available in the form of input tax credit. These taxes add to the cost of goods and services through "tax on tax" which the final consumer has to bear. Since, with the introduction of GST, all the cascading effects of CENVAT and service tax would be removed with a continuous chain of set-off from the producer's point to the retailer's point, other major Central and State taxes would be subsumed in GST and CST will also be phased out, the final net burden of tax on goods, under GST would, in general, fall. Since there would be a transparent and complete chain of set-offs, this will help widening the coverage of tax base and improve tax compliance. This may lead to higher generation of revenues which may in turn lead to the possibility of lowering of average tax burden.
Ans. The GST will give more relief to industry, trade and agriculture through a more comprehensive and wider coverage of input tax set-off and service tax set-off, subsuming of several Central and State taxes in the GST and phasing out of CST. The transparent and complete chain of set-offs which will result in widening of tax base and better tax compliance may also lead to lowering of tax burden on an average dealer in industry, trade and agriculture.
Ans. The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost.
Ans. The present threshold prescribed in different State VAT Acts below which VAT is not applicable varies from State to State. The existing threshold of goods under State VAT is 5 lakhs for a majority of bigger States and a lower threshold for North Eastern States and Special Category States. A uniform State GST threshold across States is desirable and, therefore, the Empowered Committee has recommended that a threshold of gross annual turnover of 10 lakh both for goods and services for all the States and Union Territories may be adopted with adequate compensation for the States (particularly, the States in North-Eastern Region and Special Category States) where lower threshold had prevailed in the VAT regime. Keeping in view the interest of small traders and small scale industries and to avoid dual control, the States considered that the threshold for Central GST for goods may be kept at 1.5 crore and the threshold for services should also be appropriately high. This raising of threshold will protect the interest of small traders. A Composition scheme for small traders and businesses has also been envisaged under GST as will be detailed in Answer to Question 14. Both these features of GST will adequately protect the interests of small traders and small scale industries.
Ans. With the introduction of GST, all the cascading effects of CENVAT and service tax will be more comprehensively removed with a continuous chain of set-off from the producer's point to the retailer's point than what was possible under the prevailing CENVAT and VAT regime. Certain major Central and State taxes will also be subsumed in GST and CST will be phased out. Other things remaining the same, the burden of tax on goods would, in general, fall under GST and that would benefit the consumers.
Ans. With Constitutional Amendments, both CGST and SGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import on goods and services.