|
Mahindra
Scorpio has quite a taxing time before it even gets onto
the road. Let's rewind to the beginning.
Like all
other goods produced in India it bears a 14% excise duty
or CENVAT at the manufacturing stage.
Then
another 2% CST or Central Sales Tax when it travels to
another state
And finally a 12.5% Value Added Tax or VAT when it's
sold.
Little
wonder, M&M CFO Uday Phadke is eagerly awaiting the one
single tax that will replace this multiple tax system -
the Goods & Services Tax or GST.
Uday
Phadke, President- Finance, Legal and Fin Services, M&M
When the
GST is introduced there is very little scope for
cascading of taxes. So whatever is the rate of tax
declared on a particular good, that is THE rate. That is
one. Secondly because the whole system will operate on
basis of credit being available on production of
invoices, it will lead to transparency in the system.
But, last
week’s announcement by the Empowered Group of State
Finance Ministers may prove Mr Phadke wrong
Asim
Dasgupta, Chairman, Empowered Committee of State Finance
Ministers
There will
be two rates- one regular rate and a concessional rate
for essential commodities. There will also be a list of
exempt items as normally done and a special rate for
precious metals
We were
expecting 2 rates and instead do we have 5?
Well,
multiple GST rates are common in many countries across
the world.
Take the
United Kingdom for instance-here the regular Value Added
Tax or VAT rate of 15% is accompanied by a lower rate of
5% for domestic power, and residential renovations.
Items like food, books, transport and drugs are VAT
exempt.
In France,
there’s a standard rate of 19.6%. Food, public
transport, some drugs, books and water - these goods
attract a 5.5% VAT, while an even lower rate of 2.1%
applies to items like newspapers and some medicines
But in
India- defining a standard list of essential items for
the whole country is easier said than done
Pratik
Jain. ED, KPMG
the
definition of an essential item could change from state
to state. Because rice could be an essential time for
eastern states, but for Western states it could be
wheat. So it depends on what the key constituents are of
that state, what is an item of consumption etc.
States
need to agree not just on essential items, but also on a
standard concessional rate, says drug manufacturer Glaxo
Smith-Kline
The
company has manufacturing facilities located in Punjab &
Andhra Pradesh, from where it dispatches products to
various nationwide locations.
For Glaxo
- if the list of concessional items or rates differs
across states, life after GST will become far more
complex.
RC Gupta,
Head-Taxation, Glaxo Healthcare
Assuming
we talk about medicines. And I am selling medicines from
State A to State B and State C. Assuming in State B,
rate is 4% and State C it is 0%. Now GST is going to be
a destination based tax. So when I sell the medicine
from my state A to State B, I should charge local GST at
4% but when I sell from A to state C, then I am charging
the same product at 0% tax. This means that even if I am
staying in same state A, I need to charge the tax rate
in the receiving state. If that happens, I need to keep
a track of the tax rate applicable in all 30 states
before raising invoice.
But
ironing out all those details means significant time,
effort and coordination at the central and state
government levels.
It’s
ironic—though the Direct Tax Code is likely to be
applicable only in 2011, draft details are already
available for comment. However, no details have been
provided yet on the Goods & Services Tax, which is
scheduled for implementation next year itself.
Hopefully, more will be known on GST after the next
meeting between the states and Finance Minister Pranab
Mukherjee on October 8.
Source
: The Business Standard, India, dated 25/09/2009
|
