The most awaited tax reform in India, which would unify the Indian markets is Goods and Services Tax (GST).

GST finds early mention in 2004 when Kelkar task force on implementation of Fiscal Responsibility and Budget Management Act has suggested a comprehensive tax on goods and services based on the principle of value addition. A proposal to implement national level GST was done in Parliament by the Finance Minister while presenting the budget for 2006 - 2007.

After years of deliberations and negotiations, the proposal to implement GST could receive Presidential assent on 10th September 2016. Since the GST law required an amendment to the Constitution of India it was required to be passed by the 2/3rd majority of both houses of Parliament and has to be ratified by 50% of the state parliaments.

The powerful GST council comprising of the Finance Minister of India and his counterparts from the state governments constituted on 12th September 2016 has been working overtime to meet the ambitious target of rolling out the act effective 01st April 2017.

The much-awaited rates  of GST which were eagerly awaited were announced on 03rd November. The GST Council announced a five-tier rate structure for goods and services as under:-

0% or exempted would apply to essential items including food which are part of consumer inflation index. The intent to keep these items exempted is to keep the inflation in check, which GST might bring in temporarily.

5% would apply to items of common use

12% & 18% most of the goods and services will fall under these categories

28% the peak rate would apply to luxury products, tobacco products and aerated drinks. Which will attract an additional cess/ sin tax for a period of five years.

The purpose behind introducing GST is to unify the fragmented market of the Indian republic, to remove trade barriers, eliminate multiplicity of tax regimes, remove incidence of conflicting tax rates, & overlapping procedures, eliminate dual taxation & cascading effect of taxes, to reduce litigation, remove the regime of popular concessions & exemptions.

Ideally, GST should be single/ dual rate structure with no/ negligible exemptions, what GST council has actually given us is a multiple tax rate structure and multiple exemptions. Having multiple exemptions result in denying credit on the production inputs. The agriculture sector would not be able to claim the GST input tax benefits on fertilizers, pesticides, agriculture equipment and seeds.

With the multi-tier structure, the government has hardly achieved the aim of simplicity and the new structure is almost like the existing one with the multitude of tax rates. This gives rise to interpretation issues between revenue and taxpayers.

Conflicts of interpretations, exemptions and classification give rise to litigations and anxiety, this also sets in an environment of excessive control and suspicion.

The proposal to levy cess/ sin tax is to balance the state revenue, which goes against the fundamental of GST. The GST act was to subsume multiple taxes and cesses into one class of tax. Though an initial sunset period of five years is proposed but that leaves the door open for more such levies in future, with an annual review feature the cess rate is subject to tinkering. The government in place of aligning its policies with the economy would like to play with multiple tax rate and cess rate to fund its gap.

With multiple tax rates are the multiple classifications of GST as CGST, SGST and IGST.

(AM)