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In its first formal
response to the discussion paper on GST by the empowered group of state finance
ministers, the department of revenue has instead recommended that there should
be a single rate of GST for both goods and services because a dual rate may lead
to inversions in the duty structure.
The empowered group, headed by West Bengal Finance Minister Asim Dasgupta, had
suggested a lower rate for necessary items and goods of basic importance and a
standard rate for goods in general. It had also recommended a special rate for
precious metals and a list of exempted items.
The Centre’s stand on a single rate is in line with the views of the Thirteenth
Finance Commission’s task force on GST, which had proposed a single GST rate of
five per cent for the Centre and seven per cent for states, except for five
specific categories, in its report released last month. The finance ministry’s
response to the Centre, however, has not suggested any revenue neutral-rate for
GST in its comments.
If the finance ministry sticks to its stance on a single-rate GST structure, the
likelihood of the new indirect taxes regime rolling out by April 2010 is
completely ruled out. Official sources admitted that the states are likely to
oppose the single-rate structure and this would further delay the implementation
of the new GST system.
The Centre is concerned that adopting a dual rate for goods would give rise to a
similar demand for services as well, and also this would not eliminate the
existing distinction between goods and services. It said this would result in
input credit accumulation and demand for refunds.
Against the demand of the states, the government said electricity duty, octroi,
purchase tax and local taxes should be subsumed under GST. It also suggested GST
be levied on petroleum products and alcohol.
On the list of items to be exempted from GST, Centre said around 99 items at
present exempted under VAT or value-added tax may be kept out of GST for initial
years and the states should not expand the list.
The Union government has disagreed with the states on the issue of maintaining
different thresholds for both the Centre and the states. The empowered group, in
the discussion paper released in November 2008, had recommended a uniform GST
threshold of Rs 10 lakh across all the states. However, for Centre, it had
suggested a threshold of Rs 1.5 crore for goods and “appropriately higher” for
services.
“There should be a uniform threshold. This annual turnover threshold could be Rs
10 lakh or even more than that. The Centre may also have a composition scheme up
to gross turnover limit of Rs 50 lakh, if the threshold for registration is kept
at Rs 10 lakh,” the government said.
The Finance Commission taskforce had also suggested small dealers, service
providers and manufactures with an annual turnover of less than Rs 10 lakh
should be exempted from both Central GST and State GST.
The report had not gone down well with the empowered committee, with the states
questioning the methodology used by the committee to arrive at a revenue-neutral
rate for the proposed indirect tax.
Pratik Jain, executive director, KPMG, said, "What the Centre is saying is
desirable, but we have to see whether it is possible to implement it on the
ground. In the short-term we may have multiple rates. However, over a period of
time we should move towards a uniform tax rate with a broader base."
Jain said the empowered group should not have a problem with a common threshold
and a consensus is likely on this. He added purchase tax and octroi should be
subsumed under GST because keeping this out of GST would lead to distortions.
Source:
Business Standard, India, dated
26/01/2010
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