The clock for the Goods and Services Tax (GST) was set
in motion in the 2006 Budget by Mr P. Chidambaram, who fixed the date for its
introduction as April 1, 2010. Since then, the progress towards such a tax
gained momentum and culminated in the issue of a Discussion Paper by the
Empowered Committee of State Finance Ministers on November 10, 2009.
In Chapter 3 of the DP, various issues concerning the
designing of GST have been stated. The emphasis is on a
model that could be easily implementable while being
generally acceptable.
The effort would be to work out an appropriate mechanism
that will be binding on both the Centre and the States
with a harmonious rate structure.
Salient features
The salient features of GST, as mentioned in the DP, can
be summarised thus:
There would be dual rates — one levied by the Centre (CGST)
and the other by the States (SGST). Appropriate rates
would be prescribed for this. Apparently, for this,
multiple statutes for the Centre and the States will be
necessary with uniform basic features.
Barring the exempted ones, the CGST and SGST would apply
to all transactions of goods and services.
Taxes paid against CGST shall be allowed as input tax
credit (ITC) only against CGST. The same principle will
be applicable in the case of SGST too. Cross-utilisation
of ITC between CGST and SGST would be impermissible. The
rates for this purpose are to be aligned.
Exports would be exempt from GST (zero-rated).
To the extent feasible, uniform procedure for
collections for both CGST and SGST would be prescribed.
The Central and State Governments would have concurrent
jurisdiction for the entire value chain and for all
taxpayers on the basis of thresholds prescribed by such
Governments.
The threshold limits proposed are: Rs 10 lakh for SGST;
and Rs 1.50 crore for CGST.
For services, there is no limit prescribed in the DP.
Both the Central and State Governments will have
concurrent jurisdiction to tax services.
There could be option for GST registration.
The taxpayers would need to submit periodical returns in
common format to authorities under the CGST and the SGST.
Each taxpayer would be allotted a PAN-linked taxpayer
identification number.
Functions such as assessment, enforcement, scrutiny and
audit would be undertaken by the authority, which will
collect the tax.
The following taxes would be subsumed in the GST:
Central:
Central excise; additional excise; special excise duty
for medicinal and toiletries; service tax; CVD and SAD;
surcharges and cesses.
State:
VAT/sales tax; entertainment tax, except those levied by
local bodies; luxury tax; taxes on lottery; betting and
gambling; State cesses and surcharges; and entry tax
that is not in lieu of octroi.
The issue regarding subsuming of purchase tax in GST is
being discussed with the States.
The exempt items under CGST would be (i) alcohol and
beverages; (ii) petroleum products (fuel); and (iii)
agriculture.
Inter-State transactions
There shall be an inter-State GST (IGST).
Both the Central and State Governments can levy such a
tax.
A scheme of transfer of credit will ensure uninterrupted
input credit chain.
No rates for levy of this tax have been mentioned in the
DP both for goods and services. Constitutional
amendments would be necessary: (a) to give powers to the
States to tax services and imports; and (b) Centre will
need powers to tax sale of goods.
Though the DP is a major breakthrough, there is no
clarity regarding the rates and liability on
place-of-supply basis, inter-State transactions, rules
regarding services, etc.
Much still needs to be done. Constitutional amendments
are to be made, the legislation for the Centre and
States have to be drafted after consultation with the
taxpayers, assessees have to be educated through
seminars, media, pamphlets and brochures, etc.
State Governments (the latest being the Maharashtra
Government) are already expressing problems with regard
to implementation from April 1, 2010. Hence, the date of
implementation can be straightaway postponed to April 1,
2012, to enable all work relating to GST legislation
being done prior to this date and the country can have a
robust, well-drafted and widely acceptable legislation.
Source: The HinduBusinessLine, India, dated 12/12/2009
