GST

Subject: Economy

Context:

The Centre and the states are in a tussle over delayed compensation payments under GST

Concept:

• The GST aims to streamline the taxation structure in the country and replace a gamut of indirect taxes with a singular GST to simplify the taxation procedure.
• It has been established by the 101st Constitutional Amendment Act.
• It is an indirect tax for the whole country on the lines of “One Nation One Tax” to make India a unified market.
• The Goods and Services Tax (GST), rolled out in July 2017, marked a major shift from the traditional production-linked tax to a consumption-based tax.
• The new regime subsumed state levies such as VAT, sales tax, octroi/entry tax together with central levies such as central excise and service tax.
• States gave up some of their taxation rights in lieu of the Centre passing on their revenue share under GST and also compensating them for potential revenue losses in the first five years.
• It is levied on the value addition and provides set offs. As a result, it avoids the cascading effect or tax on tax which increases the tax burden on the end consumer.
• There is a provision of GST Councilto decide upon any matter related to GST whose chairman in the finance minister of India. It will approve all decision related to taxation in the country. It consists of Centre, states and UTs with legislature. Centre has 1/3rd voting rights and states have 2/3rd voting rights. Decisions are taken after a majority in the council.
• GSTN is registered as a not-for-profit companyunder the companies Act. It has been formed to set up and operate the information technology backbone of the GST. While the Central (24.5%) and the state (24.5%) governments hold a combined stake of 49%, the remaining 51% stake is divided among five financial institutions

• The consumer pays an overall rate under one of the major tax slabs — 5%, 12%, 18% and 28% — out of which half accrues to the Centre and half to the state where consumption happens.

Compensation cess

• Compensation cess was introduced as relief for States for the loss of revenues arising from the implementation of GST.
• States, in lieu of giving up their powers to collect taxes on goods and services after local levies were subsumed under the GST, were guaranteed a 14 per cent tax revenue growth in the first five years after GST implementation by the Central government.
• States’ tax revenue as of FY16 is considered as the base year for the calculation of this 14 per cent growth.
• Any shortfall against it is supposed to be compensated by the Centre using the funds specifically collected as compensation cess.
• Compensation cess is levied on five products considered to be ‘sin’ or luxury goods like SUV, pan masala, cigrattes.
• The collected compensation cessflows into the Consolidated Fund of India, and then transferred to the Public Account of India, where a GST compensation cess account has been created.
• States are compensated bi-monthly from the accumulated funds in this account.