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The draft code has been
formulated in the face of stiff opposition from BJP-ruled
states such as Madhya Pradesh and Karnataka.
Others such as Punjab, Haryana and Tamil Nadu have been
able to wrest significant concessions in order to
protect their exchequers amid fears that the
implementation of GST could crimp states’ revenues.
The GST has been a contentious subject. Today’s white
paper gave some indication of this by refraining from
spelling out the rates under the dual GST structure or
setting a timetable for its implementation.
Earlier, the government had promised to introduce the
GST by April 1 next year.
Union finance minister Pranab Mukherjee and Bengal
finance minister Asim Dasgupta — the chief architect of
the tax reform — will now hold discussions with traders
and recalcitrant states to bring everyone on board.
The GST will mark the culmination of a tax reform
process that began feebly 23 years ago when the Rajiv
Gandhi government introduced a modified value added tax
(Modvat) in 1986 and gathered steam after the BJP-led
Vajpayee regime introduced Cenvat in 2002.
The new tax will have a two-tier structure: a central
GST rate and a uniform state GST rate, which can
together add up to 12.5 per cent for the broadest range
of goods and services.
The GST will subsume central levies like excise duty,
additional customs duties, surcharges and cesses. It
will also envelop state taxes such as VAT, entertainment
and luxury taxes, lottery and gambling taxes and state
cesses.
However, it isn’t likely to end the irksome octroi duty
that states slap on goods moving through its roads.
A second, concessional GST rate — which could vary
between 4 and 6 per cent — will be levied on goods which
are considered basic necessities such as foodgrains,
matches, basic medicines etc.
Besides, a special low rate will be levied on trade in
precious metals and financial services. Social goods and
goods of local importance will be exempt from taxation.
Dasgupta said tobacco products would be the only item
that would attract GST and a separate central tax as the
government wanted to discourage their consumption. So,
tobacco products such as cigarettes, beedis and chewing
tobacco will be subject to excise duty over and above
the normal GST.
However, there are battles ahead on the road to tax
reform. States such as Punjab and Haryana have managed —
at least for the moment — to forestall attempts to bring
the mandi or purchase tax on foodgrain within the ambit
of GST.
Madhya Pradesh and Chhattisgarh have imposed a similar
purchase tax on minerals and do not want to scrap it.
User states such as Bengal and Maharashtra are expected
to push for the elimination of this levy.
The states have compromised by saying the tax can be
axed if the Centre is ready to compensate states that
give up this tax.
The draft code talks briefly about a compensation plan —
possibly for five years — to make GST more acceptable to
states that fear a loss of revenue.
Similarly, states such as Tamil Nadu and Karnataka which
derive huge incomes from excise duties on alcoholic
beverages do not want GST to subsume the state VAT and
other levies on liquor and wine which are at a minimum
of 20 per cent. This has stymied efforts by Dasgupta and
others to bring all goods and services under the new tax
regime.
Source :
Calcutta
Telegraph,
dated
10/11/2009
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