GST roll out likely to be deferred to 1 April 2011      

The UPA government's proposed comprehensive indirect tax reform, goods and services tax (GST), will likely not roll out from 1April due to a temporary setback to the creation of a unified national market for goods and services in the country. However, according to experts, this would offer more time to the centre and states to prepare a more robust framework.

According to Asim Dasgupta chairman of the empowered committee of state finance ministers and West Bengal finance minister, it would not be practical to introduce GST on 1 April, 2010 due to the difficulties in passing the required constitutional amendment bill in the budget session. He was speaking to reporters after an hour-long meeting of the panel with the union finance minister Pranab Mukherjee on Thursday.

The GST, which is a consumption tax, is aimed at creation of a seamless pan-India market with both manufacturers and service providers given the right to adjust taxes paid on inputs sourced from another state.

Finance minister Pranab Mukherjee, had in October, at a summit in the capital, indicated possibility of a few months' delay in implementation of the proposed tax, but had later said the efforts were on to keep the schedule.

According to analysts, Dasgupta's admission was a clear indication that the implementation of the new regime might be delayed by a year to 1 April, 2011 as a number of states might not be willing for even a mid-year roll-out.

Even tax experts agreed that it was much better to delay the launch and come out with a good product that to push a patchwork product. According to R Muralidharan, this would give time to prepare a flawless model.

However, according to Pratik Jain, executive director KPMG, the government needed to provide a clear roadmap. He added that it had not come as a surprise that the deadline would not be met. He added that it would give time for preparation but a clear roadmap had to be put in place.

The original schedule called for implementation of the GST from 1April this year, to bring about uniformity in the indirect taxation structure across the country by scrapping central levies such as excise duty and excise tax along with the value added tax (VAT) and octroi at the state level.

However, the centre and states are yet to decide on crucial elements of the new tax regime including the rates, items to be taxed and exempted and turnover threshold the most crucial aspect in any tax structure.

The centre wants a single rate structure and a uniform turnover threshold of Rs 10 lakh an-annually. The empowered committee has on the other hand suggested a differential two rate structure with lower turnover threshold for state level GST and higher turnover of Rs 1.5 crore for central GST.

There also does not exist any agreement on the Central Sales Tax (CST) compensation to states. It may be pertinent to recall that at the time of introduction of the VAT in the states, the CST was cut from 4 per cent to 2 per cent for inter-state transfer of goods with the objective of scrapping it completely upon the introduction of the GST.

Dasgupta said that during Thursday's meeting Mukherjee agreed to compensate states to the extent of Rs9,676 crore, which worked out to around 68 per cent of the total revenue loss on this account.

Additionally Rs1,000 crore would also be sanctioned by March, which according to analysts would add to the government's fiscal deficit, which is expected to widen to 6.8 per cent in 2009-10.

Source: domain-B, India, dated 29/01/2010