India: Parliament Passes Goods and Services Tax Bill
Lok Sabha, the lower house of India's parliament, passed the Constitution (122nd Amendment) Bill, 2014 on Goods and Services Tax (GST) in May 2015. On August 3, 2016, the amended Bill was cleared unanimously by the Rajya Sabha, India's upper house. This passage paves the way for the implementation of GST in India, which represents one of the country's most significant tax reforms since independence. Once enacted, India’s GST system will replace the current indirect tax system in India, which comprises a variety of taxes such as VAT, service tax, central sales tax and entry tax. As a result, the new system will affect businesses and consumers alike across the whole of India.
The key amendments carried out in the Bill during the course of its passage in the Rajya Sabha include:
- Deletion of 1% additional tax, which had previously been proposed on all inter-state supply of goods;
- Full compensation to the states for the first five years towards for any losses incurred due to the implementation of GST;
- The establishment of a mechanism to resolve disputes between the central government and states, or between various states, that arise from GST Council recommendations.
The cap on the GST rate has not been determined and is not part of the Bill. The Bill will now be sent to Lok Sabha, where passage requires a two-thirds majority. If passed, the Bill must then be ratified by at least half the state assemblies before it's enacted through presidential assent. This will be followed by: the formation of the GST Council (within 60 days of enactment); the launch of the GST Network; the framing of central and state GST law; and the law for GST to be levied on supplies in the course of inter-state trade.
Parliament may take up the GST Bill in the winter session. More action will be seen on GST in the coming days, particularly on the specifics of GST legislation, including administrative and compliance processes, place of supply and other rules.