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GST
allegiance reaffirmed
With the proposed date of
introduction of goods and services tax (GST), April 1, 2010, fast approaching,
there has been an uncertainty in the air whether GST would meet its target
rollout date. The meeting of the Empowered Committee of the State Finance
Ministers on September 16 has brightened prospects of GST being implemented on
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Implementation of GST is set to be the biggest tax
reform hitherto ushered in the country.
As a comprehensive value-added tax on goods and
services, which operates at each stage of production and
distribution, GST would result in a major
rationalisation and simplification of the consumption
tax structure at both the Centre and the State levels.
Dual in
nature
The new
tax regime will replace existing taxes such as excise
duty, service tax, Central Sales Tax at the Central
level and VAT, entry tax, etc., at the State level. The
GST structure would be dual in nature, comprising
Central and State GST.
At the recent meeting of the State Finance Ministers,
broad consensus was reached on the dual structure of GST,
with State GST comprising a standard rate and a lower
rate for essential commodities. The rates applicable on
items included under different slabs are yet to be
officially announced but could be 8-9 per cent for
standard items and 4-5 per cent for essential
commodities.
Apart from the two rate slabs under the State GST there
would also be a special rate for precious metal such as
gold, silver, platinum, and so on, expected to be fixed
at 1 per cent. It is expected that there would be a list
of exempted items under State GST.
A dual tax rate structure under State GST would lead to
disputes on categorisation of goods and services and has
the potential to once again lead to the litigative road
as seen under the current tax regime. Moreover, such
variance in tax rates goes against the moot principle of
implementation of GST, that is, single and uniform tax
structure.
A Joint Working Group (JWG) has been set up to work out
the framework for a constitutional amendment for
introducing GST.
This is vital because neither the Centre nor the States
has the power to levy tax on items which fall outside
their respective lists prescribed under the Seventh
Schedule of the Constitution. Therefore, an enactment of
GST, which provides the Central Government to tax beyond
the manufacturing stage and the State governments to tax
services, would require constitutional amendment.
Model
legislation
The JWG is
also entrusted with the drafting of model GST
legislation for the Centre and the States. Such a step
is imperative as all States would be required to frame
their legislation in consonance with each other and have
it passed from the assemblies.
The Empowered Committee also needs to address issues
relating to abolishing of diverse local taxes,
determination of a common threshold for levy of GST,
treatment of real property transactions, petroleum,
alcohol and tobacco. Special ‘place of supply’ rules for
determining the cross-border supplies of goods and
services and the State where such supplies are taxed
also need to be promulgated.
These rules are especially important for supply of
services since services do not entail physical movement.
There is an urgent need to clear the structural hurdles
and bottlenecks in the way of GST implementation and,
hopefully, this will gather pace with support from
relevant quarters.
Source
: The Hindu BusinessLine, India, dated 17/09/2009
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