New Year Greetings !

 The 122nd Constitutional Amendment Bill on the Goods and Services Tax has been introduced in the Lok Sabha.

 Bharat Ratna conferred on former Prime Minister Atal Bihari Vajpayee and freedom fighter Madan Mohan Malaviya.

 Inflation likely to be around 6%: RBI Governor.

 Easy exit norms for foreign investors in construction sector.

 Govt proposes subsidy regime for MSMEs in draft policy.

 All ports implementing ERP for seamless connectivity.

 Introduction of Constitution Amendment Bill: The Constitution 122nd Amendment Bill, which is the first solid step in direction of GST, has been introduced in the Lok Sabha. The purpose of this amendment is to confer powers to the States to levy tax on Services to the Central Government to levy tax on Sales. The Bill also provides for setting up of a GST council with the Finance Minister as Chairman and the State Finance Ministers / Revenue Ministers as Members. The council will be responsible for bringing in GST and is having wide powers to decide the entire structure of GST. The Bill also provides for the Central Government to retain power to tax inter-state transactions and specifically excludes petroleum to be out of GST. Further the Bill provides for a levy of 1% tax by the States on inter-state transactions, compensation for States etc. The Bill is expected to pass during next session of the Parliament beginning from February-March 2015.

Response from States: Though the Bill has been introduced after a broad consensus on the contours of GST, after introduction of the Bill, most States have rolled back and are up in arms with some common and specific grievance and demands. The common grievance is that the GST Bill would confer powers to the Centre to levy tax from the manufacturing stage to the retail stage whereas the revenue from Services to the States would not be sufficient to compensate the revenue loss resulting from GST implementation. Further the 1% tax proposed which is contrary to consumption based nature of GST is a distortion intended to benefit only the manufacturing States. The specific demands ranges from compensation for ten years (North-Eastern States), compensation for 15 years and power to levy purchase tax (Punjab). Consensus on critical aspects like Revenue Neutral Rates (RNR) and bands, compensation methodology and thresholds (Tamilnadu), provision in the Budget for compensation of revenue loss suffered by states due to reduction in CST (Telengana) are not there.

Response from Industries: Abolition of taxes such as entry tax would result in free flow of goods across the States, logistics cost would come down substantially and there would be broadening of credit base which would be beneficial to the traders as well as service providers. Exclusion of Petroleum would result in breakage of set-off chain.

Challenges: Streamlining IT backbone, whether there is enough time for drafting a full fledged GST with inputs from experts, industry and public before the cut-off dated of 01st April, 2015, training to State VAT department on levy of tax on Services and Excise and Service tax on tax on sale of goods. Final integration with common GST portal would happen only after GST laws of Centre and States are ready.

What to watch out for: What would be the revenue neutral rate, treatment of exemptions as SEZ, EOU etc in GST, treatment of stock transfer as GST is a tax on supplies and not sales, whether GST law would take in to account nuances of areas as e-commerce, intangibles or services encompassing both international and domestic transactions, place of provision of supply rules…