Approval of Constitution Amendment Bill Paved Way for GST

The Union Cabinet approved the Constitution Amendment Bill on 15 March 2011 thereby paving the way for the introduction of the Goods and Services Tax (GST). GST aims to weave together a common market by dismantling fiscal barriers among states. Under the current system the Centre and states tax goods independently. Upon being adopted GST can change tax administration by giving a one-shot solution to levies such as excise, value-added tax and octroi.

The Centre is believed to have diluted earlier position of empowering itself with veto powers to overrule decisions, it has however proposed the setting up of a Goods and Services Tax Council (GST Council). The cabinet did not refer to its earlier suggestion of making the finance minister as head of the council. The Union minister of state in charge of revenue and finance ministers of each state will be a member of the council. The Council will be the supreme authority on deciding on rates and threshold limit of turnover below which GST shall be exempted.

It will be the duty of the GST council to make recommendations on taxes, cesses, surcharges levied by the Centre, states and local bodies, which shall be subsumed in the Goods and Services Tax. The current draft is the fourth draft of the Amendment Bill. State governments had rejected the earlier three drafts fearing loss of discretionary fiscal powers.

The introduction of GST at the central level will likely lead to revenue gain for the Centre apart from including more indirect central taxes and integrate goods and service taxes for the purpose of set-off relief.

It is expected to widen the dealer base by capturing value addition in the distributive trade and increased compliance, the finance ministry says. Because of the removal of cascading effect, the burden of tax under GST on goods is expected to fall.

The GST will also override all indirect taxes such as excise duty and service tax at the federal level and value added tax (VAT) at the state level as well as local taxes and thereby help to create a common market across the country. According to experts past evidences have shown that revenue rose significantly in countries which adopted GST.

The Parliament will also decide upon the composition of the GST Dispute Resolution Authority, proposed to be a part of the Constitution Amendment.