The Select Committee of the Rajya Sabha presented its report recently on the Constitution (122nd) Amendment Bill, 2014. The bill is the first step to bring Goods and Services Tax (GST) across India. The amendments are aimed at empowering the Federal / Union Government to levy tax on goods beyond manufacturing stage and the Regional / State Governments to tax services. As per the changes proposed, taxable event will be supply of goods or services and both tiers of government will tax every supply.
The panel of the Upper House of Indian Parliament has deliberated on various concerns voiced by industry, States and other stakeholders as regards levy of tax, rate of tax, compensation to States for loss of revenue, mechanism to resolve disputes arising out of GST and so on. The report of this committee covers various aspects touching the design and structure of the GST.
Tax on inter-State supply of goods & 1% additional levy
The committee is of the view that since there was no cascading effect of taxes, GST could be imposed on supplies of goods and services in the course of inter-state trade. However, it was argued that the additional levy of 1% to be collected on supply of goods in the course of inter-State sale and assigned to the ‘manufacturing’ States which fear loss of revenue in the GST scenario since GST is a consumption based tax, was essentially market-distorting. Also, since states were anyway assured of full compensation for losses in the first five years, this levy was opposed. The Committee agreed that provision of 1% additional tax in its present form is likely to lead to cascading of taxes and has recommended insertion of an explanation to Clause 18 in the Bill to state that supply means ‘All forms of supply made for a consideration’. This will enable such inter-state supplies between different units of same entity like stock transfers to be kept out of this levy.
Certain views were advanced that a maximum rate of tax (suggested as 18%) should be part of the amendments. However, since the rate of GST would be dynamic and subject to change based on various factors like economic conditions or nature of goods for instance tobacco or luxury items, the Committee did not recommend binding the GST Council to fix a rate below a fixed maximum rate. It hoped that the GST rate would be moderate.
Majority of the States were opposed to bringing petroleum under the GST ambit since petroleum and petroleum products were the major source of revenue for them. The industry members put forth their concern that they would not be able to get credit on taxes paid for intermediate inputs – most of which were petroleum based. The Committee, did not recommend changes in the clause as it stands now and opined that once the states could see the benefit of inclusion in the GST regime, the GST Council would appropriately notify the date from which these products would be exigible to GST. The proposal to cap this period so that the date will not be beyond 5 years from the date of introduction of GST was not accepted by the Committee.
Definition of supply & services
The Committee did not find it necessary/ appropriate to include the definition of ‘supply’ in the Clause 13 of the Bill stating that the various committees framing the GST laws would take up the same. On the definition of ‘services’ as ‘anything other than goods’ the Committee opined that the definition is wide such that all supplies that are not goods could potentially be covered within the ambit of services. There were some views from members that services should be defined as ‘commercial transactions in intangibles’ since the current definition was circular leading to what is ‘goods’.
Compensation to local bodies
As regards compensating local bodies for loss of revenue and also for states to raise finances in special circumstances, the Committee recommended that the word ‘band’ used in the ( proposed) new Article 279A be defined as range of GST rates over the floor rates within which CGST and SGST may be levied. In response to the views that local bodies may not be adequately compensated, the Committee opined that the additional levy over and above the floor rates could be used to provide funds to local bodies. The Committee is also of the view that funding needs of the local bodies can be better addressed through vertical devolution of State GST revenues rather than levies like entertainment taxes.
Other major recommendations
The Committee has recommended that GST rate for banking industry should be minimum. On GST Council, the panel did not find it necessary to disturb the provisions on composition, working, vote, etc., of the GST Council opining that neither Centre not State was at an disadvantageous or dominating position. On GSTN, considering the fact that it would be a repository of a lot of sensitive data on business entities across the country, the Committee has cautioned the government recommending that non-government financial institution shareholding in GSTN should be limited to public sector banks or public sector financial institutions.