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A
fall in tax incidence on goods and services offered would
enable producers to sell their products at a lower price,
leading to increased demand.
“Economic
value of this (referring to $15 billion), at a modest 3
per cent discount rate, would be close to $0.50 trillion
(or half a billion dollars) and more importantly, this
means an additional employment of 5 million,” said
Kelkar while delivering the convocation address of the
Indira Gandhi Institute of Development Research.
The
aim of the GST is to have one uniform tax and do away with
multiple taxes like excise duty, central sales tax and
services tax, so that tax administration and payment can
be done easily. At present, a few taxes on finished
product at the state-level cannot be set off against taxes
paid on inputs. This leads to a cascading effect of tax on
tax.
“Introducing
the GST will do more than redistributing the tax burden
from one sector or group in the economy to another. This
also brings about a macroeconomic dividend as it reduces
the overall incidence of indirect taxation and, therefore,
the overall tax burden by removing the many distortionary
features of the present sales tax system,” he said.
Under
GST, both the Centre and the states will have powers to
tax goods and services. At present, states do not have the
power to tax services.
Kelkar
hoped low GST rates, which could be achieved by
introducing the minimum number of rates, would ensure
higher compliance and acceptance, so that it would result
in revenue gains to all states.
“At
present, the combined statutory rate of the value added
tax (VAT) is close to 30 per cent, which is applied to a
narrow base. As a result, the effective rate is very low.
Our preliminary research indicates that the effective
revenue neutral rate at which GST can be implemented will
be far lower than 30 per cent, indicating a significant
reduction in the effective tax burden on our economic
agents,” Kelkar said.
“Consequent
to alignment with the lower effective rate, we can also
expect an upsurge in compliance as has been witnessed in
the case of direct taxes,” he added.
In
addition, a comprehensive GST structure would also
eliminate export taxes and help improve international
competitiveness.
“This
would considerably help improve the production and export
of labour-intensive manufacturers as well as employment in
our economy,” Kelkar added.
Source
: Business Standard, India, dated 07/02/2009
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