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The Big Picture – GST: What’s the point of conflict now?

The Big Picture – GST: What’s the point of conflict now?



The Goods and Services Tax Bill, considered to be the most important tax reforms since independence, has been passed in the Lok Sabha. However, question marks remain whether it will be passed in the Rajya Sabha in this session or not. Opposition parties have made it clear that the Bill needs an examination by the standing committee before it can be passed in the Rajya Sabha. With GST, which will subsume many of the central and state indirect taxes, is expected to transform the tax structure in the country. Incidentally, GST was proposed during the rule of UPA government and the Bill was brought before the parliament in 2011. However, it could not be passed due to opposition from various state governments. An additional tax (not to exceed 1%) on the supply of goods in the course of inter-state trade or commerce would be levied and collected by the centre. Such additional tax shall be assigned to the states for two years, or as recommended by the GST Council. Many experts have opposed this.

The GST would result in abolition of multiple types of taxes on goods and services. Going by global experience, the GST can be a big boon if it has right kind of rate and legislation. The GST bill does not go into the details. All the details will have to be worked by the GST council. Both the Centre and states will have veto powers in the council, which would be the final authority to take a call on crucial GST matters such as tax rates, exemptions, exclusions or inclusions of items in the new taxation. The Centre can single-handedly veto any proposal put forth by the states. In the proposed council, the Centre will have one-third voting power (33.33%) and the states together will have two-third voting rights (66.67 %), according to the constitutional amendment Bill on goods and services tax (GST) passed by the Lok Sabha. Each state, whether big or small will have the same voting percentage with it. For any proposal to be cleared by the council, it has to get 75% of the vote.


  • Union Finance Minister: Chairman
  • MEMBERS: Union minister of state for finance, State finance ministers or taxation minister or any minister nominated by each state government

The government has set April 1, 2016 as the latest deadline for implementing GST, which will subsume excise, service tax, state VAT, entry tax, octroi and other state levies. But for that to happen, the constitution amendment bill needs to be cleared by Rajya Sabha and has to be endorsed by state legislatures. Subsequently, the Centre and states will decide on the tax rate and a GST Bill will have to be approved by Parliament. GST is expected to broaden the tax base, sharpen the competitive edge of Indian exports by  several tax distortions and create a unified national market by removing inter-state barriers to trade. Supporters of the tax have described it as the most important tax reform contemplated in independent India. Once enacted, all goods and services, with the exception of alcohol, will come under GST’s ambit. The bill also proposes to include petroleum under GST, but has left the decision over when to start levying GST on oil products to the GST council.

The centre has included a provision in the bill that assures states compensation for five years for losses arising from GST implementation. States will be compensated for 100% of their losses in the first three years, 75% in the fourth year and 50% in the fifth year.