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Q: What is your sense? Is
it something which appears like there is no consensus
which has been arrived at and therefore the document is
very low on detail or do you think that is a harsh
assessment?
Haribhakti: It is too
harsh an assessment. I think the white paper indicates
the direction and thrust and it tries to bring an
extremely complex set of state governments with
deferring interests on the same page. I think it is
quite a compromised deal which seems to be getting
worked out.
So my own impression was
that it is a very good point to start the debate out.
Once the public comment comes in and the thrust to make
sure that the implementation happens on time, which I
could sense from the Finance Minister’s speech when he
spoke before the EGoM, I feel this is a combination of
factors which will lead to very swift implementation. We
have had a tremendous track record of bringing in very
huge changes perhaps the fastest in the world. Case in
point was the way that we handled dematerialisation so
effectively.
Q: What were your
takeaways from the white paper yesterday?
Nankani: It certainly is
a step forward but my worry is that it is not a step
forward in a long journey. I think April 1, 2010 now
most certainly does not appear to be a realistic
deadline. On the other hand, the states’ differences
which have been aired immediately at the same meeting
are a cause of concern.
Financial autonomy—if
that is the claim of the state—goes to the very root of
the matter and if that issue is not addressed, the very
fundamentals of GST are shaky.
Equally important is
these states’ demand of claiming compensation for the
loss of revenue post the introduction of GST and we have
these same two issues when value added tax (VAT) was
introduced. And, those issues were not addressed then
and we had examples of states like Kerala and Gujarat
who deviated from the model consensus and had their own
rates of taxation fixed—that is going to disrupt the
entire chain and that is going to shake up the model of
GST.
So we need to address
these two issues before any real estate view can be
taken on the goodness or the badness of it—it is a
desirable step and we are moving towards it but I don’t
know how we would be achieving the deadline of April 1,
2010.
Q: No firm or concrete
rate has been indicated. But the average rates which
sectors like cement and autos pay out today is close to
24%. From what your surmise is do you think the GST rate
eventually or the effective rate will work out to be
southward of 20% for sure?
Haribhakti: I think the
consensus will emerge around that kind of rate because
when you combine the state GST and the central GST in
order for India to be competitive, which is one of the
chief purposes of the GST, we have to bring it down to
around a consensus rate of 20%. So I think that is going
to emerge.
Q: 20% would be it for
you as well because some industry experts expected to go
down as low perhaps as 16-18%?
Nankani: It would remain
somewhere in between that range of 16% and 20% because
if you look at it today, the excise duty peak rate is
16% barring a few exceptions like alcohol and tobacco.
On imports when you have a countervailing duty (CVD)
plus special additional duty (SAD), which is in lieu of
sales tax or VAT, it is about 4%. So the combined total
of these two is around 20% mark and if you are going to
have a central GST (CGST) and a state GST (SGST) then
this seems to be a more realistic number which will
satisfy all the states.
Q: What about those
two sectors that you spoke about—tobacco and
alcohol—because there the white paper seems to suggest
that aside of the GST, the center will be free to levy
its own excise tax and in some cases even without an
input tax credit, do you think these sectors will come
in for exorbitant amount of taxation more than they even
currently bear?
Nankani: Historically
these two sectors are very highly regulated in India not
only for the purpose of revenue collections but because
of socioeconomic reasons and I think therefore at this
stage they would not be setting any new standards for
both these sectors and they would be continuing with the
same form of regulatory system for them. Therefore they
are not today part of the tax revolution if one may call
GST as one and I think it will evolve over a period of
time before they are integrated into the GST.
Q: There is also a
fear that real estate might actually stand to not
benefit once GST is introduced and that may have to live
with the higher incidents of tax rates, is that your
opinion as well?
Haribhakti: Yes.
Unfortunately, we have not realized that the real estate
sector is not a sector, which can keep bearing larger
and larger burdens of direct and indirect taxes. It is
such a crucial sector, there is such a huge shortage of
homes in this country that I am beginning to think that
they might make a distinction between the residential
sector and the non-residential sector and perhaps that
is the divide, which will save at least the residential
sector from exorbitant taxation particularly of the
indirect tax level because that simply increases the
transaction cost beyond affordable limits for people and
that is something that we should not allow to happen.
Q: When you say it is
more or less likely they will miss the deadline, how
much do you reckon they will miss it by?
Nankani: I think they
will need another six months to set the whole thing in
place. So I would look at October 1 to be a more
realistic deadline.
Source :
Press Information
Bureau (press release),
dated
11/11/2009
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