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Q. Draft model GST Law: Comment on recently released draft of model goods and service tax law.
Jun 17, 2016 Related to : GS Paper- 3 and 2

Ans :

In news-

After deliberation with state finance ministers, central government recently released draft of model goods and service tax law prepared by Empowered Committee of State Finance Ministers for stakeholders view.

Introduction-


The Goods and Service Tax (GST) is a comprehensive nationwide indirect tax on manufacture, sale and consumption of goods and services throughout India. It will subsume excise, service tax, state VAT, entry tax, octroi and other state levies and it will be levied and collected at each stage of sale or purchase of goods or services.

To implement GST, parliament must amend the constitution and which should be supported by more than half of the states. The GST is pending since long due to differences between various parties and state governments. With determined effort, central government has tried to accommodate all demands of state governments and political parties and now all state governments (except Tamil Nadu) have extended their support to GST. In this background central government has released model GST law.

Key features of model GST-

  • There will be no constitutional cap on the GST rate and GST rate is not specified in the law.
  • India will have dual GSTs i.e central and state GSTs. States will draft their own State GST based on the draft model law with minor variations.
  • All forms of supply of goods and services such as sale, transfer, barter, exchange, license, rental, lease and import of services of goods and services made for a consideration will attract CGST (central levy) and SGST (state levy).
  • The liability to pay CGST or SGST will arise at the time of supply. GST will apply on supply, the erstwhile taxable heads such as manufacture, sale, provision of services etc will lose relevance.
  • With GST to be applicable according to whether a transaction is intra-state or inter-state, separate provisions are there to help an assessee determine the place of supply for goods and services.
  • GST would be payable on transaction value, being the price actually paid or payable, and said to include all expenses in relation to sale, such as packing and commission.

Analysis-

  • Model GST law aims to integrate the country into a common market by removing barriers to trade in goods and services across states. GST will do away very difficult multiple tax rates by subsuming all indirect taxes of the Centre and states. GST regime intends to create a harmonised system of taxation by subsuming all indirect taxes under one tax.
  • It seeks to address challenges with the current indirect tax regime by broadening the tax base, eliminating cascading of taxes, increasing compliance and reducing economic distortions caused by inter-state variations in taxes.
  • GST will help to establish a transparent and corruption free tax administration. It is set to weed out all the current short comings of the supply owing to complicated, multilayer policies.
  • Proposed dual GST regime i.e Central GST and state GST will uphold the federal structure of our country. It will also increase the revenues by indirect taxes of both state and central government.

Challenges-

  • As law proposes dual GSTs, it may create issue of coordination among the states.
  • To realise GST, government need to amend constitution for that it needs two-third support in Parliament and support of more than half of states. Political interests of parties and states may create hurdles at the time of passage.

Suggestions-

  • Government should take board on all political parties and state governments to pass constitutional amendment bill to realise GST.
  • Centre and all states have to come to a consensus on uniform GST rates, inter-state transaction of goods and services, administrative efficiency and infrastructure preparedness to implement the new tax regime.

Conclusion-

GST is one of the most important tax reforms pending since last few years. The proposed GST law will simplify the current taxation system and simplicity of the tax should lead to easier administration and enforcement. It will convert country into unified market by replacing all indirect taxes with one. This will hugely beneficial for consumers as the tax burden on inter-state logistics will be cheaper. Hence the introduction of GST will be a significant step in the reform of indirect taxation in India.


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