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While
doing so, the overall scheme raises disquieting issues
related to the number of taxes that are to be subsumed
under GST and the resultant tax rate. Though another
working group has been constituted to recommend an
acceptable rate structure for the two components of the
GST, viz. central-GST and state-GST, prior to embarking
upon an exercise to decide the rates of tax, it is
important to first give due consideration to the taxes
that are going to be subsumed in the GST.
JWG has recommended that the GST should subsume all the
indirect taxes on supply of goods or services, as given
below:
-
Central
excise duties and the additional excise duties levied
on pan masala, petroleum and tobacco products, and
those levied under additional duties of excise (Goods
of Special Importance) Act, 1957;
-
Additional
customs duty in the nature of countervailing duties;
-
CVD
and other domestic taxes imposed on imports to achieve
a level-playing field between domestic and imported
goods (which are currently classified as customs
duty);
-
Cesses
levied by the Union, viz. cess on manufactured bidis;
rubber; tea; coffee; and cess on unmanufactured
tobacco; and,
-
Surcharges
levied by the Union, viz. national calamity contingent
duty, education cess, special additional duty of
excise on motor spirit and high speed diesel (HSD).
It
is to be noted that some of these levies are earmarked for
predetermined purposes, viz. education or uplift of the
workers engaged in a particular industry, development of
technology etc. These do not currently form part of the
CenVAT chain and are levied under independent Acts.
These levies, therefore, should be out of the purview of
GST. JWG further recommends that the state-GST should
include in its purview purchase tax, state excise duty,
entertainment tax, luxury tax, octroi, entry tax in lieu
of octroi, taxes on lottery, betting and gambling, tax on
consumption or sale of electricity.
However, the idea of subsumation of state excise duty
requires reconsideration. Firstly, it is an important
source of revenue in many of the states. Secondly, it
falls in the category of sumptuary excises. Also, the
Indian Constitution assigns a special role to the states
for prohibition through this tax.
Taxes on petroleum crude and its products now contribute
about 40% of the revenue from central excise duty and
significantly to the states’ exchequers. These products
are out of VAT. The JWG too recommends that petroleum
crude, motor spirit and HSD should be put outside GST.
Taxation of the remaining products could be under the GST.
With the above central and state taxes being subsumed
under GST, the proposed GST will have two
components—central GST (levied by the Centre) and state
GST (levied by the states).
The rates of these two components will be prescribed
separately keeping in view the revenue considerations,
total tax burden and the acceptability of the tax. The
effective rate of state-VAT is currently 12.5%, while the
rate of CenVAT is 16%. Hence, the combined tax rate is
28.5%. This has to be reduced to approximately 20% given
the rate stricture around the world. This would be the new
revenue neutral rate.
In
the immediate run, therefore, it is important that many of
the central and state taxes that do not affect the system
of GST be excluded from GST. These taxes can be considered
in the long-run while designing a comprehensive state-GST,
wherein the Centre withdraws from the domestic trade
taxes.
Finally, the overall tax rate at the last stage of
transactions will be transparent. As of today, the given
rate of state-VAT causes considerable evasion of tax; a
combined tax rate, of say 20%, will only further
accelerate evasion. Therefore, some remedial
administrative measures are essential.
Source
:
Economic
Times - Gurgaon, Haryana, India, dated 17/01/2008
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