GST: Soon to be a Reality in India, Cabinet Committee Indicated it’s Approval

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The much awaited Gods and Service Tax (GST) Bill finally got a approval by the Cabinet Committee on Economic Affairs. This is a first major step to pave this bill’s way for tabling in the ongoing session of parliament towards reform of India’s indirect tax regime.

For last several years, the industry, taxation gurus and related stakeholders were in favor of GST roll out.

However, confidential sources also indicated that CCEA has approved this bill after a high level meeting on the topic of this bill.

Finance Minister Arun Jaitley had reached a consensus with the Empowered Committee (EC) of State Finance Ministers on GST in a meeting earlier this week.

The previous United Progressive Alliance (UPA) government had in 2011 introduced a Constitution Amendment Bill in the Lok Sabha towards the introduction of the GST. States sought a five-year compensation package and asked for its inclusion in the bill.

Earlier, a group of finance ministers from seven states have rejected the draft Goods and Services Tax (GST) Bill, saying it does not address their concerns on the issues of compensation, entry tax, and the tax on petroleum products. This stand of central government is considered to be a strong message to all these state governments.

In Wednesday’s Parliament session, Mr Jaitley mentioned that states will receive Rs.11,000 crore this fiscal towards partial compensation of the losses suffered by them for reduction in central sales tax (CST).

While the CST is levied by the Centre on inter-state movement of goods and collected by states, the issue of compensation arose because the central government cut the CST from 4 percent to 2 percent in phases, after state-level VAT was introduced from April 1, 2005.

States also want petroleum, alcohol and tobacco to be kept out of the purview of the GST.

Seen as a key to facilitating industrial growth and improving the business climate in the country, the GST bill needs to be passed by a two-thirds majority in both houses of parliament and by the legislatures of half of the 29 states to become a law.

By subsuming most indirect taxes levied by the central and state governments such as excise duty, service tax, VAT and sales tax, GST proposes to facilitate a common market across the country, leading to economies of scale and reducing inflation through an efficient supply chain.

Full implementation of GST could lift India’s gross domestic product (GDP) growth by 0.9-1.7 percentage points, according to a study by the National Council of Applied Economic Research (NCAER).

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