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Yesterday, the government circulated certain official amendments to the Constitution (122nd Amendment) Bill, 2014 on GST. The Bill is currently pending in Rajya Sabha. The Bill was introduced and passed in Lok Sabha in May 2015. It was then referred to a Select Committee of Rajya Sabha which submitted its report in July 2015. With the Bill listed for passage this week, we explain key provisions in the Bill, and the amendments proposed. What is the GST? Currently, indirect taxes are imposed on goods and services. These include excise duty, sales tax, service tax, octroi, customs duty etc. Some of these taxes are levied by the centre and some by the states. For taxes imposed by states, the tax rates may vary across different states. Also, goods and services are taxed differently. The Goods and Services Tax (GST) is a value added tax levied across goods and services at the point of consumption. The idea of a GST regime is to subsume most indirect taxes under a single taxation regime. This is expected to help broaden the tax base, increase tax compliance, and reduce economic distortions caused by inter-state variations in taxes. What does the 2014 Bill on GST do? The 2014 Bill amends the Constitution to give concurrent powers to Parliament and state legislatures to levy a Goods and Services tax (GST). This implies that the centre will levy a central GST (CGST), while states will be permitted to levy a state GST (SGST). For goods and services that pass through several states, or imports, the centre will levy another tax, the Integrated GST (IGST). Alcohol for human consumption has been kept out of the purview of GST. Further, GST will be levied on 5 types of petroleum products at a later date, to be decided by the GST Council. The Council is a body comprising of Finance Ministers of the centre and all states (including Delhi and Puducherry). This body will make recommendations in relation to the implementation of GST, including the rates, principles of levy, etc. The Council is also to decide the modalities for resolution of disputes that arise out of its recommendations. States may be given compensation for any revenue losses they may face from the introduction of the GST regime. Such compensation may be provided for a period of up to five years. Further, the centre may levy an additional tax, up to 1%, in the course of interstate trade. The revenues from the levy of this tax will be given to the state from where the good originates. Expert bodies like the Select Committee and the Arvind Subramanian Committee have observed that this provision could lead to cascading of taxes (as tax on tax will be levied).[i] It also distorts the creation of a national market, as a product made in one state and sold in another would be more expensive than one made and sold within the same state. What are the key changes proposed by the 2016 amendments? The amendments propose three key changes to the 2014 Bill. They relate to (i) additional tax up to 1%; (ii) compensation to states; and (iii) dispute resolution by the GST Council.
These amendments will be taken up for discussion with the Bill in Rajya Sabha this week. The Bill requires a special majority for its passage as it is a Constitution Amendment Bill (that is at least 50% majority of the total membership in the House, and 2/3rds majority of all members present and voting). If the Bill is passed with amendments, it will have to be sent back to Lok Sabha for consideration and passage. After its passage in Parliament, at least 50% state legislatures will have to pass resolutions to ratify the Bill. Once the constitutional framework is in place, the centre will have to pass simple laws to levy CGST and IGST. Similarly, all states will have to pass a simple law on SGST. These laws will specify the rates of the GST to be levied, the goods and services that will be included, the threshold of the turnover of businesses to be included, etc. Note that the Arvind Subramanian Committee, set up by the Finance Ministry, recommended the rates of GST that may be levied. The table below details the bands of rates proposed.
Table 1: Rates of GST recommended by Expert Committee headed by Arvind Subramanian | ||
Type of rate | Rate | Details |
Revenue Neutral Rate | 15% | Single rate which maintains revenue at current levels. |
Standard Rate | 17-18% | Too be applied to most goods and services |
Lower rates | 12% | To be applied to certain goods consumed by the poor |
Demerit rate | 40% | To be applied on luxury cars, aerated beverages, paan masala, and tobacco |
Source: Arvind Subramanian Committee Report (2015) |
Several other measures related to the back end infrastructure for registration and reporting of GST, administrative officials related to GST, etc. will also have to be put in place, before GST can be rolled out. [For further details on the full list of amendments, please see here. For other details on the GST Bill, please see here.]
The Saansad Adarsh Gram Yojana was launched last week, for the development of model villages. Under the Yojana, Members of Parliament (MPs) will be responsible for developing the socio-economic and physical infrastructure of three villages each by 2019, and a total of eight villages each by 2024.
The first Adarsh Gram must be developed by 2016, and two more by 2019. From 2019 to 2024, five more Adarsh Grams must be developed by each MP, one each year. This implies that a total of 6,433 Adarsh Grams, of the 2,65,000 gram panchayats, will be created by 2024. Key features of the Yojana are outlined below.
Objectives
Key objectives of the Yojana include:
Identification of villages
MPs can select any gram panchayat, other than their own village or that of their spouse, to be developed as an Adarsh Gram. The village must have a population of 3000-5000 people if it is located in the plains, or 1000-3000 people if located in hilly areas.
Lok Sabha MPs can choose a village from their constituency, and Rajya Sabha MPs from the state from which they are elected. Nominated members can choose a village from any district of the country. MPs which represent urban constituencies can identify a village from a neighbouring rural constituency.
Funding
No new funds have been allocated for the Yojana. Resources may be raised through:
Implementation
A Village Development Plan must be created for each Adarsh Gram. While each village will develop a list of activities to be carried out, based on its own resources and requirements, possible activities have been listed in the guidelines for the scheme. For example, Adarsh Grams can work towards providing universal access to basic healthcare facilities, promoting diversified livelihoods through agriculture related livelihoods and skill development, providing pension for all eligible families, housing for all, and promoting social forestry.
The table below outlines key functionaries at the national, state, district, and village level and their responsibilities.
Table 1: Roles and responsibilities of key functionaries
Level | Functionary | Key roles and responsibilities |
National | Member of Parliament |
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Two committees, headed by the Minister of Rural Development, and Secretary, Rural Development, respectively.* |
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State | A committee headed by the Chief Secretary |
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District | District Collector |
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Village | Gram Panchayat and functionaries of schemes (at various levels) |
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Note: *These committees will include members from other Ministries.
Sources: Saansad Adarsh Gram Yojana Guidelines, Ministry of Rural Development; PRS
Monitoring
A web based monitoring system will be established to enable the MP and other stakeholders to monitor the scheme. Outputs relating to physical and financial targets will be measured each quarter. A mid-term evaluation and post-project evaluation will be conducted through an independent agency.
More information on the scheme is available in the guidelines for the scheme, here.