GST: Money Bill, Financial Bill or Something Else?

The unanimous approval of the GST bill created history on August 3, 2016, and paved pay for a much-needed overhaul of the tax system on goods and services. GST is a progressive tax regime aimed at ending the complex indirect tax structure that currently exists in India.

To understand GST, it is necessary to first understand how the indirect tax system in India currently works.

Indirect Tax System Regime in India: the Present Scenario

Currently, the Indian constitution divides taxation powers between the Centre and the states. Areas where taxes can be imposed are divided between Central and State Govt.

For example, as per the constitution, Central govt. is exclusively entitled to levy and collect Excise duty. Excise duty is a duty on manufacture of goods in India.

On the other hand, Value Added Tax, or VAT as it is commonly known is the exclusive domain of State Govt. VAT is levied on sale of goods. Every state is empowered to make VAT rules particular to it and to also impose VAT at a particular rate.

Central Excise is a tax on production, VAT is a tax on Consumption”.

How the Consumer Ends up Paying More Tax Under this System?

The present indirect tax system involves a whole array of taxes being levied, at the Central level, as well as the State level.

When you buy a simple box of chocolates from a departmental store in Delhi, have you thought about how much tax you have paid for it? Not only is the Central Excise duty paid at 12.5 % on its manufacture included in the price you pay for it, the Delhi VAT levied on its sale is also included in the same price. Thus you have not paid a single tax, but a ‘tax on tax’.

How Does the GST Affect the Price I pay?

In short, GST is going to change the current structure of indirect taxation where Central and state Governments charge various separate taxes at different stages on the same product.

All Central Govt. Indirect Taxes will be coupled under Central GST or CGST and all State Govt. Taxes under State GST or SGST. Interstate GST will cover inter-state sale of goods and services and will be levied by Central Govt.

The SGST paid can be adjusted from IGST paid on the same product, thereby resulting in a lower cost for the ultimate consumer.

So, after implementation of GST, if you buy a cup of coffee at CCD at any outlet anywhere in India; rest assured that you will be paying a lesser price than what you are paying right now..

This is a green signal to the practical implementation of the theory of ‘one nation, one tax’.

What is the Entire Debate about Money Bill and Financial Bill Surrounding the GST?

The unanimous approval to the GST has not been a smooth journey. The Central Govt. and the opposition have been at loggerheads to decide whether GST should be presented as a money bill or financial bill.

Let’s first understand the difference between a money bill and a financial bill.

Money Bills

Money Bills can be drafted only on matters specifically listed in Article 110 (1) (a) to (g) of the constitution. Such bills contain provisions exclusively on imposition/abolition of taxes, borrowing of money and withdrawal/deposits from a consolidated/public fund. They can be introduced only in Lok Sabha and only with the consent of the President. Money bills can neither be introduced in the Rajya Sabha nor can they be amended/rejected by it.

Example of a money bill is the Finance bill (not to be confused with financial bill) that is passed every year to bring about amendments in taxation provisions and define the yearly budget.

Financial Bills

Financial Bills are not limited to the above-mentioned provisions alone and they can contain other provisions as well.

For example, President’s Emolument and Pension bill. This bill contains provisions for President’s salary and pension; but does not contain any provision on Article 110 (1) matters.

Money bills are included within the purview of Financial Bills.

A financial bill that is not a money bill is required to be passed by both houses of parliament i.e. the Lok Sabha as well as the Rajya Sabha.

“All money bills are financial bills, but not all financial bills are money bills”

If there is a dispute regarding the nature of a bill, the speaker has the power to determine whether it is a money bill or financial bill and Speaker’s decision is final.

So What Exactly is the Present GST?

The recently passed bill was a Constitutional Amendment bill. The actual GST bill is yet to be introduced.

The reason behind this is that in order to modify the powers of Central and State governments over different areas of taxation, it is necessary to amend the constitution that bestows this power upon the respective governments.

A constitution amendment bill is completely different from financial or money bills. It is an entirely separate category of bills which can be introduced in either house of Parliament and needs 2/3rd majority of members present and voting in each house.

Why the Debate Then?

The unanimous approval of GST bill has only paved way for introduction of an entirely new indirect tax structure in India. The details of GST are yet to be finalized and the present bill only amends the constitution in respect of taxation powers of the Centre and the state.

Specific provisions like tax rates and other regulations governing the imposition and administration of GST will now be drafted in separate bills in the form of CGST, SGST and IGST. These bills will then be introduced in Parliament for discussion. The entire debate surrounds this issue.

The opposition has alleged that the NDA Govt. is trying to pass the CGST, SGST and IGST as money bills to bypass the approval of Rajya Sabha where it does not enjoy a majority.

The finance minister Mr. Arun Jaitley however, says that the Govt. has no wish to bypass the constitutional procedure. But is not possible to provide assurance on the nature of a bill that has not been drafted yet.

What Next?

The CGST bill will group all Central Govt. taxes like Central Excise, Countervailing Duty and Service Tax into one. SGST will do the same for state taxes like VAT, Entertainment Tax, Octroi etc.

Whether these bills will be passed seamlessly or not depends on the form in which they are presented and the discussions that take place over them in the Parliament.

As soon as these bills are passed by the parliament, the indirect tax system as we know it, will come to an end. GST alone will be applicable to all goods and services.

Until the draft bills on CGST, SGST and IGST are introduced; the debate will continue.

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