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The
weighted average excise (Cenvat) rate now is around the median
rate of 14% and average state Vat rate is somewhere around
10%, if one reckons the cumulative effect of the two rates of
4% and 12.5% for disparate items. The service tax (Cenvat)
which will also be subsumed in the GST is now levied at 12%.
But GST rate would be less than sum of the extant tax rates of
Cenvat and state Vatit could be around 20% given the likely
expansion of tax base that this comprehensive tax would result
in, said the official.
He also asserted that and there
will be only one GST chain, with both central and state
components. Establishment of feasible machinery — at the
central and state levels for collection of the tax
and sharing of the proceeds is integral to the introduction of
GST. However, the Centre was yet to firm up and convey its
views on the empowered committee’s report, said the official
adding that there were some areas of disagreement between the
Centre and states.
He said the states’ demand for
imposition of Vat on imports akin to the countervailing duty
in lieu of central excise on imports had some merit. Asked
what would be the basis of formulating the revenue-sharing
model for the GST era, he said one criterion would be the
current revenue flows from the central and state
taxes to be subsumed in GST.
He
also said the states might have to wait to tax services
directly till the GST is introduced . Asked what would
replace the CST which is an origin-based tax inter-state
sales that is now being phased out, the official said
such sales would be subject to GST, which, unlike CST,
would allow for input tax credit.
He said GST on inter-state
sales would be levied by the destination state,
collected by the state that sells and would be
creditable to the purchaser. (Tax experts have been
pointing out that to make inter-state sales tax-free
would encourage evasion. Also, it is of administrative
importance for the government to track such sales, even
in the absence of revenue considerations).
Even as the things are
shaping up, it is rather clear that the GST model being
envisaged would be a far cry from what was promised— a
multi-point tax on value addition, shorn of tax cascades
and a catalyst to economic growth. This is principally
because many major items including petroleum products
would remain outside GST framework and would continue to
add to the tax burden of businesses.
Uniformity of treatment of
the universe of goods and services by the Centre and all
states, another desired benefit of GST would largely
elude the system as the draft being considered already
speaks of sundry exemptions and rate differentials. With
each state likely to make fresh demands for leeway on
this front, the picture would likely turn hazier. An
efficient supply-chain infrastructure , which is one of
the basic necessities for having a less onerous and
growth-promoting indirect tax regime is largely
independent of GST and the efforts being taken this
direction, apart from a fair level of computerisation of
clearing houses being planned, are far from sufficient.
Adding to these are infrastructure bottlenecks.
It may be noted that the
state VAT system, despite its overall success, is beset
with problems , caused by the differential tax rates
among states. As far as uniformity of rates is
concerned, the discipline among the states during the
initial months of the new regime, is increasingly
getting spoilt.
Each state is turning more
assertive about its own revenue decisions even as the
states are collectively bargaining for a larger share of
the tax revenue. As state governments are run by
different political parties, it is practically difficult
to end their competition to woo investors with tax sops.
It seems the Indian system has yet to show the maturity
to embrace the indirect tax reform that is very
important for enhancing the global competitiveness of
the economy.
Source
: Economic Times - Gurgaon, Haryana, India, dated
21/07/2008
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