The Hindu Editorial Analysis- 7th December 2023 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Quorum and powers

• The council shall meet from which one-half of its members will constitute a quorum, which will have the power to make decisions on the following listed matters:
• Threshold exemption limit i.e. the turnover below which goods and services will be exempted from GST.
• Rate of GST to be levied, and special provisions with respect to the states of Arunachal Pradesh, Jammu and Kashmir, Assam, Meghalaya, Manipur, Nagaland, Mizoram, Sikkim, Tripura, Himachal Pradesh and Uttarakhand, categorised as special-category states.
• Laws on the model of GST, rules for determining Inter-state supply transactions and determining the place of supply or any other matter.
• Further, the GST Council is also empowered to establish a mechanism to adjudicate any dispute between the Centre and the States or between any States.

Functions of the Goods and Services Tax Council

• The Council is required to make recommendations to the centre and the states on the following matters:
• The taxes, cesses and surcharges levied by the centre, the states and the local bodies would be merged in GST.
• The goods and services that may be subjected to GST or exempted from GST.
• Model GST Laws, principles of levy, apportionment of GST levied on supplies in the course of inter-state trade or commerce and the principles that govern the place of supply.
• The threshold limit of turnover below which goods and services may be exempted from GST.
• The rates include floor rates with bands of GST.
• Any special rate or rates for a specified period to raise additional resources during any natural calamity or disaster.
• Special provision with respect to the states of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
• Any other matter relating to GST, as the Council may decide.
• In addition, the council shall also recommend the date on which the GST may be levied on petroleum crude, high-speed diesel, petrol, natural gas and aviation turbine fuel.

Process of Decision-making

• The decision shall be taken by at least three-fourth majority out of which:
• The vote of the Central Government will have one-third of the weightage.
• The vote of all the State Governments shall account for two-third of weightage.
• Any act or proceeding of the Council will not be rendered invalid on the following grounds:
• Any vacancy or defect in the Council's constitution;
• Any defect in the appointment of a person as a member of the Council; or
• Any procedural irregularity of the Council that does not affect the merits of the case.

Other Functions of the Council

• The Council shall recommend the date on which the GST on petroleum crude, high speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel will be levied.
• When there is a disagreement about its recommendations or their implementation, the Council shall establish a mechanism to resolve the disagreement: between the centre and one or more states; or between the centre and any state or states on one side and one or more other states on the other side; or between two or more states.
• For a period of five years, the Council must recommend compensation to states for revenue losses caused by the implementation of GST.
• The Parliament denies compensation based on this recommendation. As a result, the law was passed by Parliament in 2017.

Goods and Services Tax (GST)

• The 101st Constitution Amendment Act of 2016 established GST.
• It is one of the country's largest indirect tax reforms.
• It was launched with the slogan 'One Nation, One Tax.'
• The GST has absorbed indirect taxes such as excise duty, Value Added Tax (VAT), service tax, and luxury tax, among others.
• It is essentially a consumption tax that is levied at the point of final consumption.
• To reduce double taxation, tax cascading, tax multiplicity, classification issues, and other issues, a common national market has been established.
• The GST paid by a merchant to acquire goods or services (i.e. on inputs) can be offset later against the tax levied on the supply of final goods and services.

Various Types of Indirect Taxes in India

• Service tax: This tax is levied by an entity in return for the service provided by them. The service tax is collected by the Government of India and deposited with them.
• Excise duty: When any product or good is manufactured by a company in India, then the tax levied on those goods is called Excise Duty. The manufacturing company pays the tax on the goods and in turn recovers the amount from their customers.
• Value Added Tax: Also known as VAT, this type of tax is levied on any product sold directly to the customer and is movable. VAT consists of Central Sales Tax which is paid to the Government of India State Central Sales Tax which is paid to the respective State Government.
• Custom Duty: This is a tax levied on the goods imported to India. Sometimes, Custom Duty is also levied on products that are exported out of India.
• Stamp Duty: This is a tax levied on the transfer of any immovable property in a state of India. The state government in whose state the property is located charges this type of tax. Stamp tax is also applicable on all legal documents too.
• Entertainment Tax: This tax is charged by the state government and is applicable to any products or transactions related to entertainment. Purchasing of any video games, movie shows, sports activities, arcades, amusement parks, etc. are some of the products on which Entertainment Tax is charged.
• Securities Transaction Tax: This tax is levied during the trading of securities through the Indian Stock Exchange.

The GST replaced the following taxes:

Taxes currently levied and collected by the Center

1. Central Excise duty
2. Duties of Excise (Medicinal and Toilet Preparations)
3. Additional Duties of Excise (Goods of Special Importance)
4. Additional Duties of Excise (Textiles and Textile Products)
5. Additional Duties of Customs (commonly known as CVD)
6. Special Additional Duty of Customs (SAD)
7. Service Tax
8. Central Surcharges and Cesses so far as they relate to supply of goods and services

State taxes that would be subsumed under the GST are:

1. State VAT
2. Central Sales Tax
3. Luxury Tax
4. Entry Tax (all forms)
5. Entertainment and Amusement Tax (except when levied by the local bodies)
6. Taxes on advertisements g. Purchase Tax
7. Taxes on lotteries, betting and gambling
8. State Surcharges and Cesses so far as they relate to supply of goods and services

Issues in GST Regime in India

• The 15th Finance Commission report formally acknowledges that the GST regime in India is an economic failure that did not deliver on its early promises.
• Multiple Tax Rates: Unlike many other economies which have implemented this tax regime, India has multiple tax rates.
• This hampers the progress of a single indirect tax rate for all the goods and services in the country.
• New Cesses crop up: While GST scrapped multiplicity of taxes and cesses, a new levy in the form of compensation cess was introduced for luxury and sin goods. This was later expanded to include automobiles.
• Economy Outside GST purview: Nearly half the economy remains outside GST. E.g. petroleum, real estate, electricity duties remain outside GST purview.
• The complexity of tax filings: The GST legislation requires the filing of the GST annual returns by specified categories of taxpayers along with a GST audit. But, filing annual returns is a complex and confusing one for the taxpayers.
• Apart from that, the annual filing also includes many details that are waived in the monthly and quarterly filings.
• Higher tax rates: Though rates are rationalised, there are still 50 percent of items that are under the 18 per cent bracket.
• Apart from that, there are certain essential items to tackle the pandemic that were also taxed higher.
• For example, the 12% tax on oxygen concentrators, 5% on vaccines, and on relief supplies from abroad

Erosion of ‘trust’ and ‘trustworthiness’

• Recently the GST Compensation issue between the Centre and the State led to decreasing trust in the centre by some states. Apart from that, the other issues eroding the Co-operative federalism are,
• End of revenue guarantee: During the enactment of GST, the Centre promised compensation for loss of revenue faced by states. This revenue guarantee ends in July 2022.
• Citing the pandemic, some states are demanding more compensation time
• Loss of fiscal autonomy of states: States surrendered the majority of their indirect taxation powers for the implementation of GST.
• At present, States have no taxation powers over them. But the GST revenues are uncertain, and the States also do not witness on the ground.
• The issue of Pandemic: The second wave of Covid-19 infections put greater onus on the States.
• Such as mobility restrictions, vaccination sequencing, and even procurement of Vaccines.
• With less tax revenue on hand, the States cannot meet all the needs to tackle the pandemic.

Suggestions to improve the GST regime in India

• Expansion Of Tax Base: There are many goods that are still outside the GST net and hamper the seamless flow of input tax credit.
• Key items outside its ambit are electricity, alcohol, petroleum goods, and real estate.
• Among fuels, it may be possible to bring natural gas and aviation fuel within GST. Also, the government in the upcoming meeting can reduce the GST on essential items such as oxygen concentrators, vaccines, etc to overcome the pandemic.
• Infusing tax predictability: The GST Council can adjust the rates only once a year. Further, the Centre shouldn’t bypass GST by introducing any Cess.
• The Centre can also rationalise the present Cess ecosystem in India to a bare minimum.
• This will ensure tax predictability to states and enhance the ease of doing business.
• More accommodative approach from the Centre: To prevent an irretrievable breakdown during the pandemic the Centre has to be more accommodative to State’s needs.
• Such as, allocating State’s share properly, procuring vaccines from abroad, etc. This will further enhance the State's reliability on GST.

Conclusion

The introduction of GST is a step in the right direction toward the formalisation of India's economy. But in order to include people in the Direct tax bracket, the Centre and States must recognise the restrictions imposed by Indirect Taxes. A constitutional body called the Goods and Services Tax Council (GST Council) is tasked with advising the state and central governments on matters pertaining to the GST. However, in order to put the GST Regime back on track, India needs to take some radical measures, such as extending the revenue guarantee to the States, limiting cesses, and most importantly, respecting the fiscal needs of the State governments.