The last three articles in this column had addressed the expectations from Budget 2011 concerning the various indirect taxes. This article examines what Budget 2011 could have in store for the proposed dual GST and also the Constitution (115th) Amendment Bill 2011, which is a significant initiative pertaining to the GST. This Bill has been majorly in the news recently.
It is now most likely the GST will only come about by April 2012. Nevertheless, it is reasonable to expect that Budget 2011 will be used by the Centre to both affirm its resolve to introduce this far reaching and fundamental tax reform measure and also to signal its intent on various elements of the GST law and procedures. It must be understood the annual Budget is a defining event in the country and will surely be treated as such by the Centre, as regards the GST. Equally, Budget 2012 will be too near to the likely date of introduction of the GST for the Government to be able to announce far reaching changes at that late stage. Hence, Budget 2011 will surely provide a certain raiser to the GST.
As is now well known, the GST is an inflexion point in India’s fiscal landscape and marks a fundamental transition from an origin based taxation regime to a destination based consumption tax regime. Accordingly, Budget 2011 will likely contain affirmative statements to the effect that the GST is undoubtedly a better tax to have and that the country must therefore progress meaningfully towards making the tax a reality in a year's time from now and that the Centre has taken note of the concerns of the States and will ensure that these are taken on board and a consensus arrived at as to how the tax might come about.
Besides these affirmative statements, Budget 2011 could also be used to signal the Governments’ intent on the likely GST rates. This could be through appropriate changes in the excise and service tax rates.
As regards the Constitutional Bill (Bill) referred to above, it is important to provide some context prior to discussing the Bill in itself. As is well known, the Central Government and the States, though the mechanism of the Empowered Committee of State Finance Ministers (EC), have long been deliberating on various aspects of the GST. However, certain disagreements have cropped up between the Centre and the States. It was envisaged that a GST Council will be formed, which will have the sole authority to carry out changes in the GST rates and GST law / procedures. The differences have arisen on the constitution of the council and the manner in which decisions will be taken thereat. This has led to prolonged discussions and to revised versions of the amendment bill. Very recently, the Finance Minster has affirmed his resolve to introduce the third and latest version of the Bill in the Budget session of Parliament. Also, the draft Bill is now in the public domain and makes for interesting reading. As a result of these recent developments, the chances of the introduction of the GST by April 2012 appear to have considerable brightened, notwithstanding the continued differences between some of the States and the Centre. Accordingly, despite the unfortunate controversy on the GST that had broken out late last week between the Centre and the Gujarat Government, it is hoped that the momentum is not lost and will indeed gather force, upon the tabling of the Bill in Parliament.
Let us now turn to the contents of the Bill. It proposes to introduce new Article 246A to authorise the Centre and the States to make laws with respect to the GST imposed by the Centre and States respectively, with the proviso that the Centre will have the exclusive power to make laws with respect to the GST on inter State supplies. Article 269A is proposed to be introduced to authorize the Central Government to charge the GST on inter State supplies and for the tax to be shared between the Centre and the States in an appropriate manner as prescribed by law. The Explanation to this Article treats the supply of goods or services or both in the course of import into India as a deemed inter State supply. The Article also authorises Parliament to formulate the principles for determining when a supply is supposed to take place on an inter State basis. Thus, as can be seen, these articles enable both the Centre and the States, to charge the GST on supplies of both goods and services, in an appropriate manner. They would also effectively mean that the Centre will now be able to charge the tax beyond the stage of manufacture, as is presently the case. Equally, the States will have the power to charge a tax on services.
The Bill further provides for the formation of the GST Council, in terms of new Article 279A. It states that the Council will comprise of the representatives of the Centre and each of the States and will make recommendations on the following:-
1. the taxes, cesses and surcharges levied by the Centre, the States and the local bodies which may be subsumed in the goods and services tax;
2. the goods and services that may be subjected to or exempted from the goods and services tax;
3. the threshold limit of turnover below which goods and services tax may be exempted;
4. the rates of goods and services tax; and
5. any other matter relating to the goods and services tax, as the Council may decide.
It can thus be seen that the Council will have comprehensive and wide ranging powers on all aspects of the GST, from rates on to exemptions, thresholds etc. The Council is envisaged as a recommendatory body. It remains to be seen as to how these recommendations will translate into actual and effective action of the ground. However, new Article 279B is a pointer in this regard. It envisages the establishment of a GST Dispute Settlement Authority, to adjudicate any dispute or complaint arising out of a deviation from any of the recommendations of the GST Council. This will imply that the recommendations of the GST Council will be required to be followed in actual practice, as any deviation would trigger an adjudication by the Dispute Settlement Authority.
Article 286 is proposed to be amended to replace the principle of sale or purchase of the goods with the principle of supply of goods or of services, so as to enable the GST to be charged on such supplies. Further, Article 366 of the Constitution is also purported to be amended so as to define the GST as the levy of any tax on the supply of goods and services or both, except taxes on the supply of the following goods namely:
1. petroleum crude;
2. high speed diesel;
3. motor spirit (commonly known as petrol);
4. natural gas;
5. aviation turbine fuel; and
6. alcoholic liquor for human consumption.
Further, Clause 29A of the above Article, pertaining to categories of deemed sales is intended to be abolished. Also, the 7th Schedule to the Constitution, relating to the Union List and the State List is intended to be amended in a manner so as to continue with the Central Excise duty on all of the products referred to above, excluding alcoholic liquor, as well on tobacco and tobacco products. Similarly, the State list is proposed to be amended in order to authorize the States to collect tax, in the form of the present VAT, on sales of petroleum crude, petrol, high speed diesel, natural gas, aviation turbine fuel and alcoholic liquor.
In sum therefore, the Constitution Amendment Bill, which will be tabled in the forthcoming session of Parliament, is expected to generate a wide ranging debate on the GST. It is hoped that this will result in a comprehensive agreement on the way forward to the introduction of the GST by April 2012.
The Author is Leader Indirect Tax Practice PricewaterhouseCoopers
Email: pwctls.nd@in.pwc.com
(Supported by Rahul Renavikar and Abhishek A Rastogi)
