New Delhi: The Union government on Saturday released the drafts of the three supporting legislations for the goods and services tax (GST).
The three draft laws—the central GST law, the integrated GST law and the compensation law—will be discussed in the next meeting of the GST Council on 2-3 December. Once the council gives its nod, the bills will be tabled in Parliament in the ongoing winter session. Passage of the bills in the upcoming winter session will be crucial for the government to meet its 1 April implementation deadline.
As per the provisions of the draft GST (Compensation To The States For Loss Of Revenue) Bill, 2016, states will be compensated for five years for any losses arising from a transition to this new indirect tax regime. The base year for calculating the compensation figure will be 2015-16. A uniform growth rate of 14% for all states will be assumed for calculating the revenue due to states and the shortfall, if any, from a transition to GST. The compensation will be paid quarterly to the states based on provisional calculations.
Besides all the indirect tax collections of the states including the value added tax, luxury tax and the entertainment tax, the taxable base will also include the revenue from the 2% central sales tax.
For special category states and the North-Eastern states, the revenue foregone by these states on account of exemptions given by them to specific entities will be included in their revenues while computing compensation. The bill also provides for imposition of a cess on certain specified items the proceeds of which will go to a GST compensation fund.
At the end of five years, it has been proposed that 50% of the unutilized funds in the GST Compensation Fund will be transferred to the consolidated fund of India, and will be distributed between the centre and the states as per the formula of the fourteenth finance commission. The remaining 50% will be distributed among the states in the ratio of their total revenues from SGST in the last year of the transition period.
The draft GST law lays out the process by which CGST and SGST will be levied and collected, the resolution of disputes and the process of registration and refunds. The draft empowers the central government to empower an existing authority or creating a new authority to ensure that the reduction in the tax rate of items are passed on to the consumers by a commensurate reduction in the price of that particular good and services supplied by him. The authority will be empowered to impose a penalty in case the lower taxes are not passed on to the consumers.
The draft also retains the provision of imposing a 1% tax collected at source on e-commerce companies. E-commerce companies will have to collect this amount from their supplier and file corresponding returns. The law also requires service tax assesses to register in every state they operate—a provision strongly opposed by telecom, banking and insurance companies as it will increase their compliance requirements.
“Provisions relating to anti profiteering, while aimed at protecting the consumers, might be difficult to implement. Many concerns of the services sector, particularly with respect to single centralized registration and clarity in terms of place of supply rules, have not been adequately addressed,” said Pratik Jain, leader, indirect tax at Pwc India, in a note.
The draft IGST law provides for the way inter-state sales will be taxed. The draft says that the IGST rate cannot be more than 28%—the highest tax slab agreed by the GST council. Yielding to demand from states, the draft law also proposes to empower state government tax officials in certain cases to act as administrators of the act, besides central tax authorities.
The draft also has provisions to allow exports of goods and services and supply of goods and services to a special economic zone to be classified as zero rated supply—situations in which the tax on input supplies is nil.