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Tobacco,
another demerit good, may be brought under GST with input
tax credit — where taxes on inputs are set off against
the tax paid on the finished goods. However, the Centre
may be allowed to levy excise duty without the input tax
credit, over and above the GST rate, to protect its
revenues.
These
proposals form part of the recommendations of a sub-panel
of the Empowered Committee of State Finances Ministers,
which is giving final touches to the dual GST structure
for the country, in consultation with the Centre. The
committee is an apex body that resolves all central and
state economic matters, and also has representatives from
the Union finance ministry.
Under
the GST structure, both the Centre and states will have
the power to tax all goods and services at every stage of
value addition. The tax rate will be uniform and consist
of state and central tax components.
Already,
taxes on petroleum products, which contribute nearly 40
per cent of tax collections, have been kept outside GST
regime to protect the revenues of Centre and states, as
the GST rate will be moderate. The combined GST rate is
likely to be around 16 per cent. An estimate of how much
taxes on alcohol and tobacco contribute to the revenue of
the states is not known.
Currently,
alcohol sales are taxed by states at a floor rate of 20
per cent. But the rate is high as 36 per cent in some
states. “Considering the requirements of several states,
alcoholic beverages may not be brought under GST,” a
state finance minister said.
The
state tax officers’ panel also recommended that states
should continue to collect excise duty on alcohol. States
also collect licence fees from liquor manufacturers and
distributors, prompting them to lobby to keep the product
outside GST.
On
tobacco, the panel has recommended that it should be
subjected to GST with input tax credit. However, the
Centre may be allowed to levy excise duty on tobacco
products, over and above GST and without input tax credit
to ensure its revenues are not affected under the benign
tax regime.
Tobacco
is taxed at 12.5 per cent at the state level, while the
Centre levies excise duty on tobacco at various rates.
There
are some other products like electricity on which the
states and Centre are yet to take a final view on keeping
them outside the GST regime.
The
GST structure, which is almost ready, is waiting for a
final nod from Prime Minister Manmohan Singh, expected to
come this month.
Source
: Business Standard, India, dated 09/02/2009
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