GST stands acronym for Goods and Services Tax. Currently, Central and State Governments levy multiple types of taxes on goods and services like Central Sales Tax, Central excise duty (Cenvat), VAT, Entertainment tax, Luxury Tax, Entry Tax, Octroi, purchase tax and State Surcharges etc. GST replaces all the above central and local taxes as a single tax. The amount of tax collected under GST will be then shared between the Central and the State Governments in equal proportion which will be named as CGST and SGST rates.
Advantages of GST:
- GST unites different markets into one by dismantling fiscal barriers amongst the States.
- There is no discrimination in sharing the tax between the Centre and States as the tax collected will be shared by them in equal proportion.
- The implementation of GST would bring National Uniform Tax regime which will ensure levying of tax uniformly on all goods and services throughout the country.
- Both components, CGST and SGST will be levied on the manufacturing cost and collected only at destination point instead of existing system of collecting taxes at various points between manufacturing and retail outlets. This new system of collecting taxes under GST will lower the overall tax inputs on the manufactured items across the country; thereby industries like automobiles, cement, FMCG, film exhibitors, retail and logistics etc. could be the major beneficiaries.
Under the current laws, only Central Government has the power to impose Services tax. State Governments do not have the right to collect service tax. The states therefore need constitutional amendment to empower them to collect the GST. However, any amendment to Constitution requires at least two third majority votes in both the houses of Parliament. Lok Sabha has already passed the amendment in May 2015 and it is currently stuck in Rajya Sabha for want of political consensus on GST rates, compensation to States on potential revenue loss, and issues related to dispute resolution mechanism. The bill is likely to be passed in the current session of Parliament. The GST bill, after passage in the Parliament, is further required to be passed in the majority number of State Assemblies, to become the law.