- What is Goods and Services Tax (GST)?
- How are decisions in the GST councils made?
- What is Compensation Cess?
- What is the recent issue about?
- What are the other issues with respect to the present GST regime?
- Way Forward
GST : Compensation related issues and concerns
What is Goods and Services Tax (GST)?
- The introduction of Goods and Services Tax has been considered a historic reform. GST is an indirect tax which has amalgamated numerous central and state taxes and cesses.
- GST is classified under Central GST, State GST and Interstate GST. CGST is levied on intrastate supplies by the central government and SGST is levied on intrastate supplies by respective state governments. IGST is levied on interstate supplies by the Centre (equal to CGST + SGST combined on supplies made within the state).
- Various goods and services are placed under four tax slabs of 5%, 12%, 18% and 28%.
- GST has direct linkage with consumption in the economy. Greater the consumption, greater the GST collections.
- 22 crore registrations have been done under GST. 78% of revenues come from 0.6% of tax payers. 99% of revenues come from 23% of tax payers. 25% of tax payers are not paying taxes in cash.
How are decisions in the GST councils made?
- The GST council is a very good example of cooperative federalism. All the decisions are taken by 75% of the majority voting. States have a total voting share of 66% and the Centre has a voting share of 33%. However, until now, all the decisions have been taken through consensus.
- The design of the GST council is such that both the States and the Centre have to come together and take a decision benefiting both parties. For e.g., If all the states agree and the Centre does not agree on a subject, the changes will not take place. Also, since the Centre has a 33% share, Centre can only pass a decision after taking states into confidence
What is Compensation Cess?
- As mentioned earlier, GST has subsumed 17 central and state taxes and more than 13 cesses. These state taxes constituted 60-70% of state taxes.
- Compensation cess was introduced as a relief for States for the loss of revenues arising from the implementation of GST. The base year would be 2015-16 along with a 14% growth every year over that base year. Compensation cess is collected on sin and luxury goods. And these goods are pan masala, tobacco, aerated water and luxury cars.
- The collected compensation cess is deposited into the Consolidated Fund of India and then transferred to the Public Account of India, where a GST compensation cess account has been created.
What is the recent issue about?
- According to the speaker, the States have been compensated until the month of October 2019. An issue has arisen that the amount has not been paid for two months.
The Finance Minister has said in the parliament that the states would be compensated the compensation cess whatever is due to them.
What are the other issues with respect to the present GST regime?
- There is huge scope for enhancing the tax base, compliance and curb evasion. Simplification of returns to be rolled out from January 2020. This would provide twin benefits of invoice matching and reducing the chances of tax evasion.
- Bringing alcohol for human consumption and petroleum products into the GST ambit. But to bring alcohol, a constitutional amendment would be required whereas to bring petroleum under GST, the decision by the GST council would suffice.
- The government is planning to address the B2C GST evasion through a dynamic QR code to be published on the bills. Also, lottery based rewards are being planned to encourage customers to take bills.