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According to official
sources, in a technical paper the commission is going to
release shortly, it would also recommend a substantial
broadening of the tax base by including hitherto
untaxed—but potentially high-revenue—areas like real
estate deals, high-end education and healthcare
services. If the proposals are accepted, India Inc’s tax
liability will see a major dip.
In the commission’s ideal model, GST would subsume taxes
on petroleum and alcohol, both of which states want to
keep outside the new comprehensive, multi-point tax on
value added. Levies on petroleum account for a third of
the tax revenues of both the Centre and states. The
commission, headed by Vijay Kelkar, even wants the beedi
industry, which forms a large chunk of the domestic
tobacco sector, to be brought under GST.
The commission’s mandate is to recommend a formula for
fiscal resource distribution between the Centre and
states, as well as states inter se. It is, therefore,
bound to have a decisive say in finalising the GST
structure, which is integral to the fiscal resource
transfer policy. In fact, the commission has drawn
inputs from senior finance ministry officials to prepare
the technical paper.
The Centre and states continue to disagree on the
structure and modalities of GST, with the former keen to
use the new tax as a reform tool. So, by releasing the
technical paper, the commission would help the Centre
turn the table on the empowered committee of state
finance ministers, which recently published a GST
discussion paper that most analysts said reflected a
compromise.
Real estate transactions now attract only stamp duty at
the output level, whereas the output incurs input taxes
like Vat on construction material and service tax on
specified work contracts. “In most countries where a GST/Vat
system exists, sale of property is taxed like any other
transaction. All input taxes are recouped by taxpayers,
except the final consumer, as credit,” said E&Y partner
Harishanker Subramaniam.
The empowered committee’s model not only leaves many
contentious questions unresolved, but also defeats the
purpose of capturing most supply chains According to
official sources, in a technical paper the commission is
going to release shortly, it would also recommend a
substantial broadening of the tax base by including
hitherto untaxed—but potentially high-revenue—areas like
real estate deals, high-end education and healthcare
services. If the proposals are accepted, India Inc’s tax
liability will see a major dip.
In the commission’s ideal model, GST would subsume taxes
on petroleum and alcohol, both of which states want to
keep outside the new comprehensive, multi-point tax on
value added. Levies on petroleum account for a third of
the tax revenues of both the Centre and states. The
commission, headed by Vijay Kelkar, even wants the beedi
industry, which forms a large chunk of the domestic
tobacco sector, to be brought under GST.
The commission’s mandate is to recommend a formula for
fiscal resource distribution between the Centre and
states, as well as states inter se. It is, therefore,
bound to have a decisive say in finalising the GST
structure, which is integral to the fiscal resource
transfer policy. In fact, the commission has drawn
inputs from senior finance ministry officials to prepare
the technical paper.
The Centre and states continue to disagree on the
structure and modalities of GST, with the former keen to
use the new tax as a reform tool. So, by releasing the
technical paper, the commission would help the Centre
turn the table on the empowered committee of state
finance ministers, which recently published a GST
discussion paper that most analysts said reflected a
compromise.
Real estate transactions now attract only stamp duty at
the output level, whereas the output incurs input taxes
like Vat on construction material and service tax on
specified work contracts. “In most countries where a GST/Vat
system exists, sale of property is taxed like any other
transaction. All input taxes are recouped by taxpayers,
except the final consumer, as credit,” said E&Y partner
Harishanker Subramaniam.
The empowered committee’s model not only leaves many
contentious questions unresolved, but also defeats the
purpose of capturing most supply chains under GST to
avoid a tax on tax. The Centre wants the two GST
components--central and state--to apply on roughly the
same base.
The committee’s discussion paper did not agree with
this, and proposed that the threshold for goods be
retained at the current level of Rs 1.5 crore for
central GST and that a much lower threshold of Rs 10
lakh for both goods and services be applicable for state
GST.
Another point of discord is the number of rates. While
the Centre wants a single rate for all transactions on
goods or services, the states have pitched for multiple
rates by differentiating between goods and services, and
also amongst various goods.
States have almost agreed on a lower 5% rate for merit
goods, but are arguing for the higher standard rate to
be 9%. Currently, items that constitute about half the
state Vat base are taxed at a lower 4% and this
comprises a large number of industrial inputs.
Sources said with the finance commission proposals to be
out soon, states might strategically defer making any
recommendations on rates to March 2010 or beyond.
Meanwhile, the Commission on Centre-State Relations,
headed by Justice Madan Mohan Punchhi, is also looking
into the need and relevance of separate taxes on
production and sales of goods & services subsequent to
the introduction of the Vat regime.
Source :
Financial Express,
India,
dated
26/11/2009
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