Published On: Wed, Aug 10th, 2016

Lok Sabha passed the Constitution (122nd Amendment) (GST) Bill, 2014

Rajya-Sabha-History-of-Indian-ParliamentCurrent Affairs : The Lok Sabha on 8 August 2016 passed the Constitution (122nd Amendment) (GST) Bill, 2014. The bill was passed by two-third majority, with 443 members voting in its favour and none against in the final vote.
Introduced in Lok Sabha in May 2015, the Bill was passed by Rajya Sabha on 3 August 2016.
Highlights of the Constitution (122nd Amendment) (GST) Bill, 2014
  • The Bill amends the Constitution to introduce the goods and services tax (GST).
  • Parliament and state legislatures will have concurrent powers to make laws on GST.  Only the centre may levy an integrated GST (IGST) on the interstate supply of goods and services, and imports.
  • Alcohol for human consumption has been exempted from the purview of GST.   GST will apply to five petroleum products at a later date.
  • The GST Council will recommend rates of tax, period of levy of additional tax, principles of supply, special provisions to certain states etc.  The GST Council will consist of the Union Finance Minister, Union Minister of State for Revenue, and state Finance Ministers.
  • The Bill empowers the centre to impose an additional tax of up to 1%, on the inter-state supply of goods for two years or more. This tax will accrue to states from where the supply originates.
  • Parliament may, by law, provide compensation to states for any loss of revenue from the introduction of GST, up to a five year period.
Key Issues and Analysis
  • An ideal 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.
  • The provisions of this Bill do not fully conform to an ideal GST regime.  Deferring the levy of GST on five petroleum products could lead to cascading of taxes.
  • The additional 1% tax levied on goods that are transported across states dilutes the objective of creating a harmonised national market for goods and services.  Inter-state trade of a good would be more expensive than intra-state trade, with the burden being borne by retail consumers.  Further, cascading of taxes will continue.
  • The Bill permits the centre to levy and collect GST in the course of inter-state trade and commerce.  Instead, some experts have recommended a modified bank model for inter-state transactions to ease tax compliance and administrative burden.

Here’s a look at the key changes proposed to the Constitution (122nd Amendment) Bill, 2014:

Clause 2014 Bill 2016 proposed amendments
Additional tax up to 1% on inter-State trade An additional tax of up to 1% on the supply of goods will be levied by centre in the course of inter-State trade or commerce. The tax will be directly assigned to the States from where the supply originates. This will be for two years or more, as recommended by GST Council. Deletes the provision.
Compensation to States Parliament may, by law, provide for compensation to states for any loss of revenues for a period which may extend to five years. This would be based on the recommendations of the GST Council. This implies that Parliament may decide (i) whether it wants to provide compensation; (ii) the time period for which it can provide such compensation, up to five years. Parliament shall, by law, provide for compensation to states for any loss of revenues, for a period which may extend to five years. This would be based on the recommendations of the GST Council. This implies that (i) Parliament must provide compensation; and (ii) compensation cannot be provided for more than five years, but allows Parliament to decide a shorter time period.
Dispute resolution The GST Council may decide upon the modalities to resolve disputes arising out of its recommendations. The GST Council shall establish a mechanism to adjudicate any dispute
arising out of its recommendations. Disputes can be between: (a) the centre vs. one or more states; (b) the
centre and states vs. one or more states; (c) state vs. state. This implies there will be a standing mechanism
to resolve disputes.
Replacement of the term IGST Under the 2014 Bill, the GST Council would make recommendations on the apportionment of the Integrated Goods and Services Tax (IGST). However, the term IGST was not defined. The 2016 amendments replace this term with ‘goods and services tax levied on supplies in the course of inter-State trade or commerce’. This is a technical change in relation to the apportionment
of the IGST. It clarifies that the states’ share of the IGST shall not form a part of the Consolidated fund of
India.
Inclusion of CGST and IGST in tax devolution to states The GST collected and levied by the centre, other than states’ share of IGST,(CGST and Centre’s share of IGST) shall also be distributed between the Centre and States. The amendments state that the CGST and the Centre’s share of IGST will be
distributed between the Centre and States. This is just a restatement of the provisions in the 2014 Bill in
clearer terms.

Source: PRS India

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