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Thus,
firms in non-GST states would have to pay higher taxes,
which will make them uncompetitive with those in states
where the tax is implemented.
“This
is an incentive system for states to join the proposed GST,”
said the same official, who declined to be named.
The
concept of “input tax credit” is essential to ensure
that producers pay tax only on their value addition part,
and not pay tax on tax. For example, if a company “A”
buys inputs for Rs 1,000, which includes a tax component
of Rs 100, then assuming that this company sells a product
after adding value to the inputs at Rs 2,000, with a tax
liability of Rs 200, the input tax credit will ensure that
the net tax payable by the firm is only Rs 100 (that is Rs
200 less Rs 100).
If
the company A is located in a non-GST state, it would pay
a total tax of Rs 300 (Rs 200 on finished product and Rs
100 on input), compared to Rs 200 paid by other producers
in a GST state.
The
Centre is hoping that in such a scenario companies in GST
states would lobby for introduction of the pan-India tax,
which will subsume most state and Centre-level taxes.
Finance
Minister Pranab Mukherjee, in an address to industry
representatives last week, said that some states might
decide to stay out of GST in the beginning like in the
case when the Value Added Tax (VAT) was implemented four
years back.
A
few states like Tamil Nadu, Madhya Pradesh and
Chhattisgarh have opposed or expressed reservation on
implementing this pan-India consumption-based tax as many
of their concerns were not resolved.
When
the VAT was introduced in 2005, some states like Tamil
Nadu did not join initially. But later, all the states
introduced the VAT. The finance minister hinted this route
could be one way to resolve the current deadlock on
rolling out the GST.
If
the input tax credit is not permitted, states that are
implementing the GST will get extra tax revenue on sales
made to buyers in non-GST states, the official said. This
is because buyers in non-GST states won’t be able to
claim credit on taxes already paid.
Source :
Business Standard - Mumbai, Maharashtra, India,
dated 15/07/2009
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