The goods and services tax (GST) bill was introduced in the Rajya Sabha yesterday. This tax reform, which is the biggest in the country since 1991, will make India a favourite destination for foreign investments. The tax rates, however, have not been fixed yet; and will be decided by the GST council; which the government will set up in the next 60 days.

Here’s what it is all about.

What is GST?

The Goods and Services Tax when passed in a parliament proposes a centralized value added tax instead of the taxes levied by the Central and State Governments. The Rajya Sabha passed the most important economic reform since the liberalisation. The primary goal is to create one single market rather than the usage of multiple taxes that vary from state to state. This tax shall be levied on both goods and services and it has two components – Central GST and State GST.

The History:

The BJP government in 2000 set up a committee of State Finance Ministers with the aim of co-creating a transition from the then existing national level tax model and state level sales tax model to a value added tax (VAT) model. It was given the task of designing the GST model. The then Union Finance Minister P. Chidambaram, during the central budget for 2006-07 introduced this concept and stated that the Empowered Committee of State Finance Ministers shall work with the Central Government to prepare a path for introduction of GST in India.

Later, this committee in synergy with Adviser to the Finance Minister, the Secretary of this committee, the Joint Secretaries of the Revenue Department formed a Joint working group in 2007 and after intense discussions and interactions with experts, they submitted the report to the Empowered Committee in November 2007.

On the basis of this discussion and the written observations of the states, certain modifications were made, and a final version of the views of Empowered Committee was prepared and was sent to the Government. The Empowered Committee thoroughly considered the Government’s comments on it which were received in December 2008.

What actually happened in the Parliament?

The House of Elders as scheduled started the scheduled discussion on the the issue at 2 pm and finally cleared the bill after a series of sessions that lasted seven and a half hours.

Six official amendments were approved by the government, including scrapping of one percent additional tax. The lighter side of the debate came during clause by clause voting as the results showed different numbers every time. Finally the Bill was passed as amended with 203 votes in favour, zero against. The AIADMK party however opposed it and its members made a walkout before the voting.

The advantages of this bill:

For businesses and industries:

Easy compliance
Uniformity of tax rates and structures
Removal of cascading
Improved competitiveness
Gain to manufacturers and exporters

For central and state governments:

Simple and easy to administer
Better controls on leakage
Higher revenue efficiency

For the consumers:

Single and transparent tax proportionate to the value of goods and services
Relief in overall tax burden

GST will replace these State taxes:

State VAT
Central Sales Tax
Purchase Tax
Luxury Tax
Entry Tax (all forms)
Entertainment Tax (not levied by local bodies)
Taxes on advertisements
Taxes on lotteries, betting and gambling
State Surcharges

GST will replace these Central taxes:

Central Excise Duty
Duties of Excise (medicinal and toilet preparations)
Additional Duties of Excise (goods of special importance)
Additional Duties of Excise (textiles and textile products)
Additional Duties of Customs (commonly known as CVD)
Special Additional Duty of Customs (SAD)
Service Tax
Surcharges in so far as they relate to supply of goods or services

These will become expensive:

Textile and branded jewelry
Beauty Parlor expenses
Banking and Insurance services
Eating outside at restaurants and hotels
Mobile phones and calls

These will become cheaper:

Paint and Cement
Consumer durable items and electronics
Biscuits and cakes

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