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Will GST Help You Pay Less?

The recommendations made by the CEA panel is largely in keeping with the expectation of most states, but this also needs ratification of the GST Council. And herein begins the long arduous path that the Government needs to tread even before a GST Council becomes a reality

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The Goods and Services Tax (GST) has been 8 years in the making and has seen many twists and turns along its way as three governments grappled with this indirect tax reform. The announcement of the recommendations of a panel led by the Chief Economic Advisor on the rates today is an important step towards implementing GST. And a standard rate of 17-18 per cent is in keeping with expectations of most states; the revenue neutral rate has been pegged at 15-15.5 per cent.

An analysis of the rates recommended by Dr Arvind Subramanian’s panel shows that while we will pay lower tax on goods, the tax on services will be marginally higher. 17-18 per cent tax on goods is much lower than the present combined figure of excise duty and VAT (value added tax) of 26.5 per cent. But the existing 14.5 per cent service tax is obviously lower than the proposed rate under GST. Rates apart, GST is crucial for doing away with the problem of a cascading tax structure, popularly known as tax on tax.

The recommendations made by the CEA panel is largely in keeping with the expectation of most states, but this also needs ratification of the GST Council. And herein begins the long arduous path that the Government needs to tread even before a GST Council becomes a reality.

If the hectic negotiations between Congress and the ruling party bear any fruit and the GST Bill is indeed passed by Parliament, then that will be the first step in the direction of implementing this ambitious tax reform.

The GST Bill is the first of the 4 Bills that need to be ratified before this indirect tax reform can become a reality in this country. This Bill pending before the Parliament will lay the foundation of this tax reform. Even after the Parliament passes it, this Bill will need nods from 50% of the State assemblies. The CGST would be a Central law, the states would have to pass their own legislation which will based on the model legislation being prepared by the Centre, this will be the SGST. And then States would also have to approve iGST, which will deal with the inter-state movement of goods and services. Since at each step these Bills will not only require to be debated thread-bare by the Empowered Committee but also approvals from State assemblies; it is clear that time is of essence. And once this process is complete only then will a GST Council be formed to ratify rates of this tax.

Most tax experts have been unanimous in their support of the CEA panel report, though they are frowning upon the demerit tax of 40 per cent. But the main concern of the industry is ample time for it to prepare for this big tax regime overhaul. “The preparedness of industry is the big concern. One would ideally like about 6 months-time to prepare once the final legislation comes out” says Pratik Jain, Partner, Indirect Tax, KPMG.