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The previous article in
this column had discussed the highlights of the key recommendations of the Task
Force in regard to the GST structure & rates, coverage & classification,
subsumation of existing taxes, input tax credits, exemptions, thresholds &
composition schemes.
This article addresses the other key recommendations of the Task Force.
Taxation of Inter-State supplies of goods and services
The Tax Force has
recommended that the taxation of inter-state supplies of goods and services be
governed by the modified banking model. The principle that the Task Force has
kept in mind in recommending this model is that of zero rating of goods in the
state of origin and the charge of the tax of such goods in the destination
states, in line with the objective of introducing a destination based
consumption tax thro-ugh the introduction of the GST. The above recommendation
has also been extended to consignment sales and branch transfers.
Exports and imports
Exports will be
zero-rated, with the benefit of recouping of input taxes as well. Both CGST and
SGST will be levied on imports of goods and services into the country. Here
again, the incidence of tax will follow the destination principle. Full and
complete set-off will be available on the GST paid on imports of goods and
services.
Tax administration and compliance
All compliance and
enforcement procedures under the CGST and the SGST should be uniform. The basis
for division could be turnover or any other criteria which is considered
reasonable so that the compliance and administrative burden is minimised. A
common IT infrastructure serving the needs of both CGST and SGST should be
established by the Central Government.
Registration
The GST registration
number should be a PAN based twelve digit alphanumeric number. Dealers having
branches across States should have multiple GST registration numbers, based on
the number of States in which they operate.
Payment of taxes
One single payment is to
be made both for CGST and SGST by assessees and the transaction reporting should
be made through a combined payment and transaction reporting statement in the
prescribed format (Form No. GST-I).
Treatment of current area based exemptions
The existing area based
exemptions in respect of CENVAT should be discontinued and if need be a direct
investment linked cash subsidy may be provided to support the industry, for
balanced regional development. The idea is to not break the GST chain with
regard to both CGST & SGST.
Taxation of tobacco, alcohol and petroleum products
The Task Force recommends
extension of the GST to all goods, without exception. It has also recommended
that tobacco, alcohol and emission fuels should be subjected to both GST and
excise. However, no set off of input tax credit for excise would be available.
Industrial fuels should be subject only to the GST with full benefit of input
tax credits.
Fiscal autonomy of states
In a major and welcome
recommendation, the Task Force has suggested that in order to permanently
institutionalise the States’ collective decision making mechanism, the Empowered
Committee of State Finance Ministers (EC) should be transformed into a permanent
Constitutional body known as the Council of Finance Ministers under the
Chairmanship of the Union Finance Minister with the State Finance Ministers
being the members of the Council.
Roadmap for GST implementation
A phased approach should
be adopted for implementation of GST whereby in the year 2010-2011, the single
CGST and SGST rates of 5 per cent and 7 per cent as recommended should be
adopted and transactions in the real estate sector should be brought within the
ambit of GST with the levy of stamp duty not exceeding 4 per cent.
In the year 2011-12, the rate of stamp duty should be reduced to 2 per cent. In
the year 2012-13, the stamp duty should be eliminated and replaced by a nominal
registration fee at a specific rate.
Conclusions and way forward
These recommendations
differ considerably from the model and structure of the GST envisaged by the EC
as described in the First Discussion Paper released by the EC on 10 November,
2009. Given the significant variations between the recommendations of the Task
Force & those contained in the first discussion Paper, it appears likely that
several of these recommendations may not find favour with the EC.
Indeed, it appears the EC has, in its meeting of 7th January 2010, discussed and
differed with the methodology and the approach of the Task Force Asim Dasgupta,
the EC Chairman, is reported to have said that the rates suggested by the Task
Force need to be reconsidered as well. Clearly things are in a very fluid stage
at this moment and we need to watch developments very closely.
Source:
Business Standard, India, dated
11/01/2010
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