|
We have a deadline of
April 2010 for GST (goods & services tax), a deadline
first promised in budget for 2007-08. On November 10,
Empowered Committee of State Finance Ministers released
the first discussion paper on GST. That is a bit late in
the day, if the deadline of April 2010 is serious. FM
has said states like Madhya Pradesh, Gujarat and Haryana
want a delayed introduction of GST and there are several
other reasons why GST from April 2010 is unlikely, if
GST is interpreted as meaning complete harmonisation,
unification and standardisation, with elimination of all
other indirect taxes.
Here is a quote from the discussion paper. “Despite this
success with VAT, there are still certain shortcomings
in the structure of VAT both at the Central and at the
state level. The shortcoming in Cenvat of the Government
of India lies in non-inclusion of several Central taxes
in the overall framework of Cenvat, such as additional
customs duty, surcharges, etc, and thus keeping the
benefits of comprehensive input tax and service tax
set-off out of reach of manufacturers/dealers. Moreover,
no step has yet been taken to capture the value-added
chain in the distribution trade below the manufacturing
level in the existing scheme of Cenvat. In the existing
state-level VAT structure, there are certain
shortcomings that are as follows. There are, for
instance, even now, several taxes which are in the
nature of indirect tax on goods and services, such as
luxury tax, entertainment tax, etc, and yet not subsumed
in the VAT. Moreover, in the present State-level VAT
scheme, Cenvat load on the goods remains included in the
value of goods to be taxed under State VAT, and
contributing to that extent a cascading effect on
account of Cenvat element. This Cenvat load needs to be
removed.”
Fair enough. And we already have two problems. First,
will Cenvat be modified? Second, have states agreed that
indirect taxes like purchase tax (important for
food-grain producing states like Punjab and Haryana),
entertainment tax, luxury tax, electricity tax and
octroi (important for Maharashtra) will be removed? If
any of these are retained, we don’t quite have a GST.
Third, CST (Central Sales Tax) has to go and states will
complain about revenue losses, over and above general
arguments about revenue losses. The model proposed in
the discussion paper has a dual GST. “The GST shall have
two components: one levied by the Centre (hereinafter
referred to as Central GST), and the other levied by the
states (hereinafter referred to as State GST). Rates for
Central GST and State GST would be prescribed
appropriately, reflecting revenue considerations and
acceptability. The Central GST and the State GST would
be applicable to all transactions of goods & services
made for a consideration except the exempted goods &
services, goods which are outside the purview of GST and
the transactions which are below the prescribed
threshold limits.” This illustrates more problems with
GST. Fourth, will exempted categories be the same across
states? Fifth, will State GST rates be identical across
states? Sixth, will thresholds be the same across
states? The discussion paper states that purchase taxes,
alcohol, petroleum and natural gas will be outside the
purview of GST.
Seventh, we need Constitutional amendments (supported by
two-thirds of the states) to allow states to tax
services and the Centre to tax beyond manufacturing.
Those amendments are unlikely overnight. Eighth, the IT
backbone is missing in many states and even if the
Centre meets part of costs (say 75%), that’s not going
to happen immediately. The discussion paper states that
this will be ready by January 2010. However, reasons for
this optimism aren’t clear. Ninth, there is still lack
of clarity about some aspects of inter-state sales
(stock transfers, inter-unit transfers, inter-office
services) and even on whether services will have an
all-India or state-level registration. To quote from the
discussion paper: “Prior to the introduction of VAT in
the Centre and in the states, there was a burden of
multiple taxation in the pre-existing Central excise
duty and the State sales tax systems. This was causing a
burden of multiple taxation (that is, ‘tax on tax’) with
a cascading effect. Moreover, in the sales tax
structure, when there was also a system of multi-point
sales taxation at subsequent levels of distributive
trade, then along with input tax load, burden of sales
tax paid on purchase at each level was also added, thus
aggravating the cascading effect further—there was also
no harmony in the rates of sales tax on different
commodities among the states.” That’s true. We want a
reformed indirect tax structure, as in the ideal GST.
Will we have that ideal GST and will we have it from
April 2010? Based on VAT experience and the discussion
paper, the answer to both questions seems to be ‘no’.
Source :
Financial Express,
India,
dated
16/11/2009
|
