To bring the Congress on board the Goods and Services Tax (GST) reform, the government agreed to do away with the additional 1% tax by producing states and compensating all states for any revenue loss in the first five years post the GST rollout.
The government did not accede to the Congress demand of specifying the GST rate in the Constitution itself. It is likely to be part of the GST Bill that will be legislated separately by both the Centre and states.
Three main concerns of the Congress over the GST bill are:
- 1% additional tax as goods move across states
- The constitutional cap of 18% per cent
- An independent dispute redressal mechanism.
The government has done away with the plan for a 1% additional levy, but has held firm on two other issues by not capping rates in the proposed legislation and leaving dispute resolution to the GST council.
What is it about?
The GST, or Goods and Services Tax, will subsume central indirect taxes like excise duty, countervailing duty and service tax, as also state levies like value added tax, octroi and entry tax, luxury tax.
The indirect tax system in India is complicated with overlapping taxes levied by the Centre and the State separately. The GST will facilitate a uniform tax levied on goods and services across the country. There will be only one centralised tax that will replace the numerous indirect taxes currently imposed.
The aim is to streamline the process of taxation and to make it easier and more effective. As Finance Minister Arun Jaitley puts it, the GST bill will lead to the economic integration of India. The final consumer will bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
GST will basically have three kinds of taxes – Central GST, State GST and another called the integrated GST to tackle inter-state transactions. As a measure of support for the states, petroleum products, alcohol for human consumption, and tobacco have been kept out of the purview of the GST.
