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It
is also understood that there will be two laws; one
being the Central GST law and the second being the State
GST law.
However,
trade and industry have been seeking a common law. The
legislation may not define the term ‘goods’ or
‘services’ but it would classify them into three
primary rate baskets, which are given below.
Merit
rate: Concessional rate for industrial inputs, IT
products, IT services, legal services, etc.
Demerit
rate: Higher rate for products such as alcoholic
liquors, certain petroleum products etc.
Standard
rate: For all other goods and services.
To
put GST in place, there are a number of issues that need
to be addressed.
However,
the three most important issues relate to:
Design
issues – which comprises Constitutional
amendments, defining the tax base, rates of taxes,
threshold limits, composition schemes, exempt goods and
services, rules relating to supply of goods and
services, nature of law being promulgated, existing laws
that are to be subsumed into GST laws, defining the
powers of the State and Centre to levy taxes, transition
issues etc.,
Operational
issues — which comprises administration, filing of
returns and other matters, payments of taxes, set-off
mechanism, transition issues, issue and applicability of
notifications and circulars, IT infrastructure,
co-ordination among States, administration by the
Central GST and State GST authorities, training of the
departmental authorities and stakeholders.
Infrastructure
issues — Employees of both the State and the
Central Government, check-posts or similar barriers,
creating a State-wise information exchange system,
checking of cross-border transactions, impact of GST on
SMEs etc.,
Former
Finance Minister, Mr Chidambaram, had indicated that the
upper limit of GST was likely to be 14 per cent. Now it
is being talked of 16-17 per cent. What will be the
number of slabs?
An
ideal GST must have a unified law and a single rate
across India.
It
appears that the revenue neutral rate that is being
talked of would be 18 per cent with4 per cent tax rates
of certain commodities, one per cent for gold, silver
and bullion, and exemption in respect of a certain
number of commodities to be decided by each State.
However,
it is customary for any Government while introducing a
new legislation, to do it with a higher rate to pre-empt
shortfall in the revenue collection. Considering this,
GST may be introduced at standard rate of 20 per cent.
Is
the deadline of April 2010 reasonable timeframe for
implementing GST?
Introduction
of GST is a complex issue considering the federal set-up
of our country. It appears to be extremely difficult to
roll out GST on April 1, 2010.
Even
assuming that GST is implemented on that date, all
States may not fall in line. Just like the VAT regime,
some States may choose to continue with VAT and
implement GST a year later.
GST
must be rolled out on April 1, 2010 provided the
“Model Law” is made available to the States and
stakeholders by September 2009 quarter.
States
not implementing GST will continue under the VAT regime
but the Centre has made it clear that input taxes will
not be permitted for set-off, i.e. Cenvat credits may
not be allowed to be set-off.
Dual
GST, Centre and State: Will it entail abolition of
Central vat or sale tax?
Introduction
of GST should invalidate applicability of VAT, CST,
Central Excise, Service Tax and Customs, doing away to
make applicable a single GST legislation, to be
introduced separately for each State.
Certain
States have achieved a high GSDP (State GD) to tax
ratio. What will be the benchmark for determining the
rates and will the states with high tax collection be
compensated like in the case of VAT?
One
of the challenges for implementing GST would be to
maintain horizontal and vertical balance. It may be
possible for the Centre to guarantee States with higher
tax GDP, compensating them in case of revenue loss.
This, however, would be restricted to a definite period
say up to three years from the date of implementation.
In
order to address this issue, a Commission must be
constituted which will study the compensation issue in
order to enable smooth and speedy implementation of a
“flawless GST”.
The
issues raised above are just the proverbial tip of the
iceberg. The Centre, States and the stakeholders will
have a major role to play in the introduction of GST.
The idea of a unified tax system is good but GST still
appears a distant dream.
Source :
The Hindu BusinessLine,
dated 24/07/2009
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