Dual GST to have common threshold      

The Centre on Monday broke its silence on the structure of the Goods and Services Tax (GST), pitching for a dual GST, with the Centre and state components (CGST and SGST) levied on a common base, yet subsuming taxes on petroleum and various state levies like electricity duty, octroi and purchase tax. It said both CGST and SGST should have only one rate reach and called for a uniform threshold, “Rs 10 lakh or even more than that.”

It added that alcohol beverages could be brought under the GST purview but said sales tax/VAT and state excise duty could be charged over and above GST. It also agreed with the states' proposal that tobacco products be subject to GST, with the provision for the Centre to levy excise duty on them over and above GST. In the cases of both alcohol and tobacco, the GST component of the tax would come with input tax credit and other taxes without that.

Commenting on the first discussion paper on GST released by the empowered committee (EC) of state finance ministers on November 10, 2009, the Revenue department said in a tabular note put up on the finance ministry website, “the IGST on inter-state transactions should be levied by the Centre. (The) Centre should pass on the SGST collection on imports to concerned states on the destination principle.” The revenue department said that the centre would handle the levy of GST on imports through a Central legislation either as a customs duty or on the line of IGST.

It may be noted that the Centre has disagreed with the EC discussion paper on many counts. For instance, the EC had proposed two-rate structure for goods under both SGST and CGST— a lower rate for “necessary items” and “goods of basic importance,” and a standard rates for goods in general. The centre has now said that there should be one CGST rate and an SGST rate both for goods and services, as the two-rate structure could pose problems such as input credit accumulation, the need for the general revenue neutral rate to be higher and continuance of the distinction between goods and services.

The EC also wanted petroleum taxes as well as state levies like electricity duty, purchase tax and octroi to be outside the GST purview. Importantly, the EC had proposed the CGST threshold for goods to be Rs 1.5 crore and “appropriately high” threshold for services as well, while it said the SGST threshold could be Rs 10 lakh for both goods and services.

Significantly, both the centre and states prefer to keep the stamp duty on immovable property to be outside the purview of GST, contrary to the proposal of the task force of the 13th Finance Commission which wanted stamp duty to be subsumed in GST.

On petroleum taxes, the revenue department said: “Keeping crude petroleum and natural gas out of the GST net would imply that the credit on capital goods and input services going into exploration and extraction would not be available, resulting in cascading…. Leaving diesel, ATF and motor spirit out the purview of GST would make it extremely difficult for refineries to apportion the credit on capital goods, input services and inputs. These products are principal inputs for many services such as aviation, road transport, railways, cab operators etc. As such, these many be levied to GST and in select cases, credit of GST paid on these items may be disallowed in order to minimize the possibility of misuse.”

The department note also said that it is closely working with the law ministry for the Constitutional amendments necessary for GST introduction.

Source: Financial Express, India, dated 26/01/2010