The Constitution (One Hundred and Twenty-Second) Amendment Bill 2014, unofficially and commonly better known as the ‘GST’ or the ‘Goods & Services Tax’ Bill, has been passed by both the upper house Rajya Sabha and the lower house Lok Sabha of the Indian Parliament. The implementation deadline for this Act is the 1st of April 2017.  Pithily put, it is a witness of the winds of change sweeping through India’s political culture and federal structure, where governance is at the forefront.  Universally expected to help boost India’s GDP growth by 100-200 bps, as GST will facilitate faster and cheaper movement of goods across the country via an uniform taxation structure, pundits and policy wonks have all raving about it as the single most important reform to come after the 1991 liberalisation, and name it a harbinger of ‘acchhe din’ for our economy.  So what is this GST and what does it augur for our economy ?  It is indeed important we look at the nuts-and-bolts of this legislation and how it is likely to affect our lives.  NRI Achievers takes a look …

The Goods & Services Tax, aka GST, is envisaged as a comprehensive indirect tax on the manufacture, sale and consumption of goods and services across India, to replace the myriad taxes levied by central and state governments.  GST will be levied and collected at each stage of sale or purchase of goods or services, based on the input tax credit method, with administrative responsibility generally vested with a single authority.

Model law provides that the GST will replace all the service, entertainment and luxury taxes completely, whereas some central excise and state value-added tax laws, most of which will also be subsumed, shall continue to apply to some specified goods, namely petroleum, alcohol, and tobacco. India has 29 states and 7 union territories with a varied tax rate and structure. The dual GST model (central GST and state GST) proposes to replace around 29 state and federal taxes and tariffs with a single tax at the point of sale.  The current combined Centre and state statutory rates for most goods works out to be 26.5%, but GST is expected to bring it down to between 18~21%.

As India is a federal republic, GST would be implemented concurrently by both central and state governments.  The implementation would however result in some revenue losses to the states.  To tackle this, the central government has assured states of compensation for any revenue losses incurred by them for a period of five years from the date of introduction of GST.  Prospects of the Union government meeting its 1 April 2017 GST implementation deadline looks possible as of now, as states across the political spectrum are moving apace to ratify the tax reform, with 14 states on-board as of this writing.  The bill needs the backing of at least 15 states before it can be sent for presidential assent.

Once the Constitution Amendment Bill is enacted, the government will set up a GST council that would decide on crucial issues such as tax rates and finalize three GST laws. The government is aiming to table the central GST law and the integrated GST law during the coming winter session of Parliament.  The state GST law will go to all the states for passage.

The benefits of GST implementation are manifold.  From our reading of the Bill, the following benefits would flow to the economy, government, consumers and industry:

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