The Congress-led UPA government has just 10 months to usher in a new goods and services tax
(GST) regime to create a seamless common market across the country. Consumers will pay a single rate of tax on goods and services sold across India, if the government introduces the levy from April 1, 2010. Work is in progress, with the empowered committee (EC) of state finance ministers scripting a model and roadmap for GST in India.
The
EC has recommended a GST with a central and state
component. And the Congress manifesto refers to a
“moderate” goods and services tax, saying once GST
is implemented, all other state- and central-level
indirect taxes, including VAT, excise duty, service tax,
luxury tax and so on will stand abolished. Customs duty
will be out of GST and is likely to be replaced by VAT
on imports.
“A
clear structure of GST needs to be in place in the first
100 days,” said TR Rustagi, former joint secretary in
the finance ministry. Echoing a similar view, S Madhavan,
executive director, PricewaterhouseCoopers, says the
government should set a clear timeline and declare a
model GST. Four years ago, states switched over to the
VAT system, which has bolstered their revenues and
improved compliance. Goods attract a 4% or 12.5% state
VAT, while excise duty is 8% for most commodities.
Services are taxed at 10%.
The enactment of GST would mean integrating the service
tax legislation with the central excise law and
harmonising the tax rates. While this will require
legislative and constitutional changes, the move will
reduce cascading of taxes and give psychological comfort
to consumers. A well-designed GST will lower
manufacturing costs. It will also make businesses more
efficient.
An earlier panel chaired by Vijay Kelkar, chairman of
the thirteenth finance commission, had mooted a GST of
20%. The plan is to have a revenue-neutral rate that
will ensure states and Centre do not make any losses
while transiting to GST.
Petroleum products and liquor are outside VAT and a view
has to be taken on their treatment. States want
petroleum products, which account for over a third of
the indirect tax revenues of the Centre and states, to
be kept out of GST. But the Centre reckons that a large
component of petroleum taxes can be subsumed in GST.
The differences are not surprising as states want to
make sure that their powers of taxation are not diluted
in any manner. Issues such as the power of levy,
collection and appropriation and sharing of revenues
between the Centre and states under GST are yet to be
sorted out. IT systems also have to be in place. The
draft GST legislation will then have to be formulated in
consultation with all stakeholders, including industry.
Sou
rce :
Economic Times - Gurgaon, Haryana, India, dated
25/05/2009
