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Even
after it is decided that it will be a dual VAT, the issues
that have to be decided are very substantial. They are the
following:
State
GST: The issue is whether it will be a State VAT or a
State GST — that is to say, whether service tax will be
included in the State VAT. It is pertinent to note that
the CII does not favour the service tax to come to the
States. The States do not allow inter-State credit of VAT
even now and they will surely not give it for the service
tax also. If they are made to give inter-state credit on a
destination basis, it will mean a major and substantive
change in the VAT structure existing today.
As
of now, the big companies in India having establishment at
different States will find a fractured Indian market and
not a common market. It is much better for the Centre to
collect it and distribute to the States. There is also the
issue about entry tax, octroi and local taxes which have
to be subsumed in the State VAT. The States had never
agreed to this earlier. The issue is also about how to
make it binding on the States after their initial
agreement.
Central
GST: The issue is about the actual nature of it. It is now
enough to say that it will combine Excise and Service. If
it is made into one tax, namely Central GST, then the
Central Excise Act and the Service Tax Law (as enshrined
in the Finance Act) will have to be abolished and a new
GST Act will have to be passed.
The
Entry 84 for excise duty in the Schedule 7 of List 1 and
Entry 92C of the same List for Service Tax in the
Constitution will have to be abolished and a new Entry
called “Duty on Value Added on Goods and Services”
will have to be introduced. It is easier said than done. A
Constitutional amendment may not succeed so easily in the
prevailing political circumstances. UP, which is not
participating even now in VAT, may play a spoilsport by
going to the Supreme Court. A much easier solution will be
to keep the present excise law and service law as they are
and still make a GST at the Centre possible by adopting
the following combination:
(i)
Existing laws to remain (without going for a
Constitutional amendment),
(ii)
A common rate of duty for goods and services such as 14
per cent,
(iii)
A comprehensive service tax with a few items in the banned
list,
(iv)
Complete interchangeability of input credit of goods and
services; and
(v)
A combined tax return for goods and services.
This
will substantially be the same as GST as in Canada &
the EU.
The
conclusion is that a painless dual GST can be achieved if
we have Central GST and a State VAT as above.
Source
:
Business
Standard - Mumbai, Maharashtra, India, dated 10/12/2007
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