understanding union budget part-2

GST

  • The Goods and Service Tax Act was passed in the Parliament on 29th March 2017. The Act came into effect on 1st July 2017.
  • Goods & Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied on every value addition. 
  • It is an indirect tax levied on the supply of goods and services.  GST Law has replaced many indirect tax laws that previously existed in India. GST is one indirect taxfor the entire country. Before the introduction of GST, there were various different taxes which were levied by both Centre and State.
  • Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage.  The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
  • GST Constitution 101st Amendment Act, 2016– Constitution (101st Amendment) Act, 2016 was enacted on 8th September, 2016. 
  • On the following products, GST shall not be levied till a date to be notified on the recommendations of the GST Council:
  • Petroleum Crude
  • High Speed Diesel
  • Motor Spirit (commonly known as Petrol)
  • Natural Gas
  • Aviation Turbine Fuel

Keeping in mind the federal structure of India, there are two components of GST – Central GST (CGST) and State GST (SGST).  Both Centre and States simultaneously levy GST across the value chain.  Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State. In case of inter-State transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods and services under Article 269A (1) of the Constitution. 

  • GST council is a governing body to regulate the implementation of goods and service tax in the nation. The GST Council is managed by the GST Council Secretariat. 

Composition: The composition of the GST Council includes: 

  • The Union Finance Minister (as Chairman).
  • The Union Minister of State in charge of Revenue or Finance.
  • The Minister in charge of Finance or Taxation or any other Minister nominated by each state government.

• For a valid meeting of the members of GST Council, at least 50 percent of the total number of the member should be present at the meeting. Every Decision made during the meeting should be supported by at least 75 percent majority of the weighted votes of the members who are present and voting at the meeting.

  • GSTN Network– For the implementation of GST in the country, the Central and State Governments have jointly registered Goods and Services Tax Network (GSTN) as a not-for-profit, non-Government Company to provide shared IT infrastructure and services to Central and State Governments, tax payers and other stakeholders.  Infosys had won the deal for developing and running the backend of GST in form of GST Network in 2015.  GST Network has become a 100% govt-owned company.
  • Advantages of GST:

FINANCE COMMISION

What is Finance Commission of India?

Finance Commission is a constitutional body for the purpose of allocation of certain revenue resources between the Union and the State Governments. It was established under Article 280 of the Indian Constitution by the Indian President. It was created to define the financial relations between the Centre and the states. It was formed in 1951.

  • President of India constitutes the Finance Commission every five years or on time considered necessary by him.
  • The recommendations made by the Finance Commission are only advisory in nature and hence, not binding on the government.

Finance Commission Chairman and Members

  • Chairman: Heads the Commission and presides over the activities. He should have had public affairs experience.
  • Four Members.
  • The Parliament determines legally the qualifications of the members of the Commission and their selection methods.

Chairman of 15th and 14th Finance Commission

Fourteenth Y.V. Reddy 2013
Fifteenth N.K Singh 2017

·   15th Finance Commission Importance

The commission comes out with its reports highlighting reforms relating to the fiscal scenarios. The 15th FC has been set up in a time when huge reforms have been taken under the fiscal federalism.

  • Replacement of Planning Commission with NITI Aayog
  • Implementation of GST reforms
  • Abolition of the planned and non-planned expenditure
  • Constituted by the President in November 2017
  • It is headed by N K Singh
  • The recommendations would be applicable for the period from 2020-2025

The interim report of the 15th Finance Commission (FC) has been tabled in Parliament this budget session.

The report has largely preserved the devolution mathematics of its predecessor, belying concerns of a sizeable cut in States’ share.(Devolution – A process in which a central government of a country grants powers to sub-national governments).The report has recommended a one percentage point reduction in the vertical split of the divisible pool of tax revenues accruing to States to 41%.

•  This follows the reorganisation of the erstwhile State of Jammu and Kashmir into the Union Territories of Jammu and Kashmir and Ladakh.

• There has been an increase in the percentage of outcome-tied funds from 10% to 50%. This could prove vexing to the last mile providers of basic services in India’s federal and highly fragmented structure of governance.

What is done to balance the financial needs?

• As part of an effort to balance the principles of fiscal needs, the following have been changed,

1.        Equity and performance,

2.        The need to ensure stability and predictability in transfers,

3.        The criteria for the horizontal sharing of taxes among States.

What is the new added parameter?

• The demographic performance is the new crucial parameter that has been added to the mix.The mandate to adopt the population data from the 2011 Census is the reason why the FC has incorporated this additional criterion.This will ensure that the States which have done well on demographic management are not unfairly disadvantaged.

•  The norm has been assigned a 12.5% weight, as it indirectly evaluates performance on the human capital outcomes of education and health.This should address the concerns voiced by several States over the switch to the 2011 Census from the 1971 data.

14THFinance commission

With regard to vertical distribution, it has recommended that the States’ share in the net proceeds of the Union tax revenues be 42%.  The recommendation of tax devolution at 42% is a huge jump from the 32% recommended by the 13th Finance Commission.

PRACTICE QUESTIONS

  1. Which does ‘R’ stand for in the acronym FRBM?
  • Reduction
  • Responsibility
  • Revenue
  • Receipt
  • None of the above

Solution: (b) Responsibility

The Fiscal Responsibility and Budget Management (FRBM) Act gives the targets for fiscal consolidation in India.

2. Salaries are a ____ expenditure.

  • Revenue
  • Capital
  • Financing
  • Investing
  • None of the above

Solution: (a) Revenue

Revenue Expenditure is the expenditure by the government which does not impact its assets or liabilities. For example, salaries, interest payments, pension ETC.

3. Proceeds from Disinvestment will be shown as part of ______.

  • Capital expenditure
  • Capital receipts
  • Revenue receipts
  • Tax receipts
  • Revenue expenditure

Solution: (b) capital receipts

Capital Receipts indicate the receipts which lead to a decrease in assets or an increase in liabilities of the government. It consists of: (i) the money earned by selling assets (or disinvestment) such as shares of public enterprises, and (ii) the money received in the form of borrowings or repayment of loans.

4. The interim report of 15th finance commission has recommended a one percentage point reduction in the vertical split of the divisible pool of tax revenues accruing to States to ____.

  • 42%
  • 32%
  • 41%
  • 31%
  • 22%

Solution: (c) 41%

The interim report of 15th finance commission has recommended a one percentage point reduction in the vertical split of the divisible pool of tax revenues accruing to States to 41%

5.The first Union Budget of Independent India was presented by _____ on November 26, 1947.

  • RK Shanmukham Chetty
  • Morarji Desai
  • Pranab Mukherjee
  • Manmohan Singh
  • None of the above

Solution: (a) RK Shanmukham Chetty