What is the Goods and Services Tax?

As the name suggests, it is a tax levied when a consumer buys a good or service. It is meant to be a single, comprehensive tax that will subsume all the other smaller indirect taxes on consumption like service tax, etc. This is how it is done in most developed countries.

What is preventing GST from being a reality?

A major change like GST requires a constitutional amendment, which requires a bill to passed in both houses of Parliament. The GST constitutional amendment bill was passed in the Lok Sabha in May this year.

It has been held up in the Rajya Sabha due to objections being raised by the Opposition regarding the Bill as well as issues with no direct connection to GST.

The Bill was also placed before a Rajya Sabha select committee, which made its recommendations regarding changes to the Bill. The Cabinet cleared these changes in July.

What are the Opposition’s objections?

The Congress wants a provision capping the GST rate at 18 per cent to be added to the Bill itself.

It also wants to scrap the proposed 1 per cent additional levy (over and above the GST) for manufacturing states.

This levy was demanded by manufacturing states who argued that they needed to be compensated for the investment they had made in improving their manufacturing capabilities. The Centre had agreed to this demand to encourage the states to support the GST Bill.

The third demand by the Congress was to change the composition of the GST council—the body that decides the various nitty-gritty’s like rates of tax, period of levy of additional tax, principles of supply, special provisions to certain states, etc. The proposed composition is for the Council to be two-thirds comprised from states and one-third from the Centre.

The Congress wants the Centre’s share to be reduced to one-fourth.

This demand, however, was rejected by even the Rajya Sabha Standing Committee.