These recommendations differ considerably from the model
and structure of the GST envisaged by the Empowered
Committee of State Finance Ministers (EC) as described
in the First Discussion Paper released by the EC on
November 10, 2009. The differences relate to several
critical areas such as the tax base, tax rates,
threshold limits, taxation of inter-state supplies of
goods and services, exemptions/ compounding schemes and
taxation of alcohol, tobacco and petroleum products in
the GST regime, amongst others. While a subsequent
article will discuss these differences, this one and the
one to follow will highlight the key recommendations of
the Task Force. It is understood that these
recommendations are yet to be deliberated and debated by
the EC.
At the outset, given the inadequate preparation for GST
implementation as of date, the Task Force has
recommended that the implementation date of the dual GST
be postponed by six months, to October 1, 2010.
GST structure
It should be a dual levy imposed concurrently by the
Centre and the States and should have two components;
the Central GST (CGST) and the State GST (SGST). The tax
base should extend to all goods and services in a
comprehensive manner upto the final consumption point
and the destination principle should be followed,
resulting in shifting of the tax base from the State of
production to the State of consumption.
GST rates
The CGST and SGST on all goods and services should be
fixed at a single positive rate of 5 per cent and 7 per
cent respectively. Out of the 7 per cent SGST rate, a
formula based devolution of an amount equivalent to 2
per cent SGST should be made to local governments and
bodies in lieu of abolition of entry tax, octroi, cesses,
etc.
Coverage
The CGST & the SGST should be made applicable on all
transactions of goods and services made for a
consideration except for exempted goods and services,
goods which are required to be outside the purview of
the GST (negative list) and transactions which are below
the prescribed threshold limits. The real estate and
power sectors should also be integrated into the GST
framework.
Classification
The GST should ensure that there are no classification
disputes between goods and services i.e. whether a
particular transaction would be taxed under VAT or
Service Tax or both and hence no distinction should be
maintained between goods and services in terms of tax
treatment and rates.
Subsumation of existing taxes
The Central taxes to be subsumed under the CGST are the
Central Excise Duty; the additional Excise Duties;
Service Tax; Additional
Customs Duty commonly known as Countervailing Duty (CVD);
surcharges and all cesses.
The state taxes to be subsumed under the SGST are VAT/
Sales tax (including Central Sales Tax CST and Purchase
Tax); Entertainment tax (other than levied by the local
bodies); luxury tax; taxes on lottery, betting and
gambling; state cesses and surcharges in so far as they
relate to supplies of goods and services and entry taxes
not in lieu of octroi.
Other state levies such as stamp duties, taxes on
vehicles, taxes on goods and passengers and taxes and
duties on electricity should also be subsumed under the
SGST.
Finally, all entry taxes and octroi levied by the local
governments or bodies should be abolished.
The Central Sales Tax (CST) should be phased out upon
the introduction of the GST.
Input tax credits
The ITC for the CGST & SGST would operate in parallel
and would be available for utilisation only against the
output payment of CGST & SGST respectively. A taxpayer
or exporter would have to maintain separate accounts for
availment and utilisation of credits. Full and immediate
ITC should be allowed for tax paid on all purchases of
capital goods in the year of purchase and any subsequent
transfers of capital goods should attract GST liability.
Cross utilisation of ITC between the CGST & the SGST
should not be allowed.
Exemptions, Thresholds & Composition schemes
Exemptions
The Centre and the States should draw up a common
exemption list which should be restricted to:
* All public services of Government (Central, State and
municipalities / panchayats) including civil
administration, health services and formal education
services provided by Government excluding railways, post
and telegraph, PSEs, Banks and Insurance;
* Unprocessed food articles covered under public
distribution system irrespective of the outlets through
which they are sold;
* Education services provided by non-Governmental
schools and colleges;
* Health services provided by non-governmental agencies;
* Any service between an employer and employee either as
a service provider, recipient or vice versa.
No exemptions should be provided to developers of or
units in the Special Economic Zones (SEZs).
Uniform thresholds
There should be a uniform exemption threshold limit both
for the CGST and the SGST. The threshold limit has been
prescribed for both taxes at Rs. 10 lakhs.
Compounding schemes
The option for availing Composition / Compounding scheme
under GST would be available to dealers having aggregate
turnover of goods and services between Rs. 10 lakhs to
Rs. 40 lakhs at a rate of one percent each towards CGST
and SGST.
The dealers in high value products like gold, silver,
platinum, precious stones and bullion, would be allowed
to opt for the compounding scheme at the aforementioned
rate irrespective of the turnover.
The next article will discuss the other key
recommendations of the task force.
