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While
the declaration in itself holds no surprises, given that
it has found a place in all the Budgets since 2006; what
stands out significantly in the Budget analysis is the
challenge that implementing such a structural change
continues to pose in th e way of indirect tax reforms.
The
Budget has spelt out that the efforts of the Empowered
Committee of State Finance Ministers have translated into
a proposal for a dual GST model, comprising a Central GST
and a State GST. The Centre and the State would each
legislate, levy and administer the Central GST or the
State GST, as the case may be.
Clearly,
a suitable compromise has, in principle, been arrived at
between the need of the States to retain their fiscal
autonomy and the requirement of industry for harmonisation
of tax laws and their administration processes.
However,
even 140 days after the Finance Minister’s previous
announcements in the same forum; the mechanism for
implementing the GST remains a mystery from the
industry’s viewpoint.
This
is in stark contrast to the 45-day timeline set to bring
about similar structural changes in direct taxes by way of
releasing the Direct Tax along with the Discussion Paper
to the public for debate.
The
GST model
Considering
that the GST marks a fundamental change in the indirect
tax landscape, the new legislation would require
enterprises to ensure thought leadership, knowledge
sharing and technological readiness prior to its
implementation.
At
the outset, any dual GST model suggested by the Empowered
Committee would require certain key constitutional
amendments. The exact contours of such amendments would,
however, only be determinable after the precise details of
the proposed dual GST have been conclusively worked out.
The
Budget-related papers tabled before the August House also
indicate that much work remains to be done in terms of
convergence of the goods and services taxes. For instance,
it is desirable to reduce the multiplicity of taxation
rates. A single tax rate is easier to administer as it
reduces classification disputes and accounting issues.
In
keeping with this need, the exemptions under the excise
laws have been pruned and the rate of duty has been
increased to the mean rate of 8 per cent on nearly all
products.
However,
taking into account the fact that the rate at which either
the Central GST or the State GST would be administered
remains undecided, the efficacy of this rate selection
remains to be seen. The challenge created by the blurring
of the traditional distinction between goods and services
still needs redressal. The Finance Minister has provided a
stop-gap measure for packaged software by way of a partial
excise duty exemption on the component, representing the
consideration towards the transfer of the right to use.
However
the problem of double taxation in areas such as
intellectual property rights, leasing transactions, etc.,
continues to be a source of concern.
Sales
Tax rates
The
reduction of the Central Sales Tax rates continues to be
held in abeyance while the details are being worked out by
the Empowered Committee. Given the proposal to abolish
Central Sales Taxes in a phased manner, the lack of
adequate movement on this front raises doubts about the
administration’s conviction about such a process. This
year’s Budget has re-emphasised the near approaching
deadline while refraining from specifying any well
detailed timelines in place, the fear of being lumped with
a half baked legislative effort cannot be undermined.
A
greater anxiety is also a repeat of the implementation of
the VAT processes in the States wherein the Indian polity
as a whole did not accept the VAT regime at the same time
but executed it in a phased manner. Such an attempt in the
case of GST would only pave the way for failure of the
entire reform process.
Clearly,
the need of the hour is to address the substantial
procedural and practical concerns which are perhaps more
than, if not as many as, the political considerations in
calibrating an indirect tax reform as colossal as the GST.
(The authors are Partner and Senior Associate,
respectively, in the Tax Practice at Amarchand Mangaldas.)
Source :
Hindu Business Line - Chennai, India,
dated 08/07/2009
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