Date August 12, 2016
India passes the biggest tax reform in 70 years – Goods & Services Tax Bill

The Indian Parliament on 8 August 2016, passed the much awaited and widely discussed legislation over the past several years, the Constitution (One Hundred and Twenty Second Amendment) Bill (commonly known as the “GST Bill”) to introduce Goods & Services Tax (GST) intending to subsume all indirect taxes under a single indirect taxation regime. The GST Bill is the biggest tax reform by India since its independence in 1947 which will certainly ease doing business in India once fully implemented. The GST Bill provides for levying GST on all transactions involving supply of goods and services, except those specifically excluded, by conferring concurrent taxing powers to both the Government of India (GoI) and the State Governments. The GST Bill seeks to address challenges faced by 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 GoI has stated that it would like to implement the GST regime with effect from 1 April 2017, but there is yet a constitutional process to be followed which will finally lead to the notification of the GST as law.

The key highlights of the GST Bill are:

(i) GST means any tax on supply of goods or services or both and will subsume excise duty, service tax, countervailing duty, central and state surcharges and cesses, value added tax/ sales tax, luxury tax, entertainment tax, octroi, purchase tax, taxes on lottery, betting and gambling and entry tax.

(ii) A GST Council would be constituted by the President of India to inter alia recommend (a) the taxes, cesses and surcharges to be subsumed in the GST; (b) the goods and services to be charged with or exempted from GST; (c) rates including floor rates with bands of GST; and (d) a mechanism to adjudicate disputes between the GoI and the State Government(s) or between two or more State Governments.

(iii) Only the GoI shall levy and collect GST on inter-state supply of goods and services, which would also include imports into India (referred to as integrated GST or IGST). The tax so collected would be divided between the center and the states in a manner to be provided by law on recommendation of the GST Council.

(iv) The rate at which GST shall be levied has not yet been decided, however, the chief economic adviser to the GoI has suggested a standard GST rate of 18%. Further, certain states will be compensated for a period of 5 (five) years for the deficit actually suffered by them due to implementation of GST.

(v) Under the GST regime the taxable event i.e., the point at which the levy of tax is attracted, would be ‘supply’ departing from earlier definitions of taxable events such as ‘manufacture’, ‘sale’ or ‘service’. Further, all forms of supply such as sale, transfer, barter, exchange, license, rental, lease and import, made for a consideration, will attract GST.

(vi) Supply of alcohol for human consumption will not attract GST. Further, GST on (a) petroleum crude; (b) high speed diesel; (c) motor spirit (petrol); (d) natural gas; and (e) aviation turbine fuel, shall be levied from such date which will be decided by the GST Council.

The GST Bill, as introduced in the Lower House (Lok Sabha) of the Parliament may be accessed at:

http://www.prsindia.org/uploads/media/Constitution%20122nd/Constitution%20%28122nd%29%20%28A%29%20bill.pdf

Report of the Select Committee on the GST Bill (22 July 2015) may be accessed at:

http://www.prsindia.org/uploads/media/Constitution%20122nd/Select%20comm%20report%20-GST.pdf

Amendments made by the Upper House  (Rajya Sabha) of the Parliament to the GST Bill (3 August 2016) may be accessed through the list of business of 8 August 2016 for Lower House of the Parliament at: