Impact of Goods and Services Tax on Multiple Taxes
GST will come into effect by enactment of constitution 122nd amendment bill. This bill is the current and slightly modified version of Constitution 115th amendment bill, which was proposed by the UPA Government in 2011 but failed to get it passed. The 122nd amendment bill was cleared in Lok Sabha on May 6, 2015 but is currently stalled in Rajya Sabha where ruling dispensation is in minority.
To become a law, the bill needs to be passed by special majority in both Houses, and ratified by 50% of states. Special majority is the majority of the total membership of that House and by a majority of not less than two-thirds of the members of the House “present and voting”.
GST and its impact on cascading effect of taxes
There are three important elements of GST:
- First, it is a unified tax taking the form of a dual GST to be levied concurrently by both levels of governments and would comprise of a Central GST and a State GST. It would combine the taxes such as excise, sales and services. It is going to replace 17 taxes and it is argued that it would lead to ease of doing business.
- Second, GST is essentially a Value Added Tax. This implies that it would be calculated on value addition and not only the value of the goods or service.
- Third, GST has to remove the cascading effect of the tax-on-tax problem and profit on tax problem. It is argued that this would lead to a fall in prices.
There is no doubt that GST would be simplifying the indirect tax regime however, it appears overhyped. Even under GST, there are going to be three taxes viz. CGST to be collected by Centre, SGST to be collected by States and the IGST to be collected by centre on inter-state sales of the goods. Thus, it appears that the CGST, SGST and IGST are nothing but new names for existing Central Excise/Service Tax, VAT and CST.
This apart, it is likely that alcohol, tobacco and petroleum products would be left out of purview of GST mainly because of pressure from states. Further, electricity and real estate is also being left out of the GST net and thus they would be taxed separately. In summary, the cascading effect of some taxes is going to stay and not to be alleviated completely.
