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There
seems to be unanimity on one issue though — it should be a Value Added Tax
(VAT) and not a tax on the entire value of sale. There also seems to be a
general consensus that unlike the present service tax which discriminates
between one service and another in the matter of its applicability, GST should
be essentially non-discriminatory in character with all goods and services being
brought into its dragnet but for exemption to small-scale dealers in goods and
service providers.
Exemption
to small units could mar the effective operation of the GST system though, as
there would be a perverse premium on smallness. Be that as it may.
Divided
opinion
The
central issue that is being debated hotly is whether the GST should be a federal
tax or a state levy with opinion divided right down the middle. Proponents of
the pan-India model say that in the matter of taxation there is nothing wrong in
the one-size-fits-all approach because after all the nation is one and States
should not be allowed to steal a march over others by lowering the tax rates or
by conferring exemptions — the bane of the system of local sales tax on goods
before the Ashok Mitra Committee could convince the States of the need for
bringing about a modicum of uniformity.
The
federal character of the new law could though throw up a problem that has to be
deftly handled — revenue sharing between the Centre and the States as well as
the inter se shares of the States. But there is no need to be unduly pessimistic
in this regard as the Chinese and Australian examples have shown even though
sceptics could be dismissive of the Chinese success on the ground that it is
after all a dictatorship.
In
any case, the Finance Commission can be counted upon to do a fine-balancing job
which does not ruffle many feathers. Weak States would welcome such a unitary
law given the fact that competition in the matter of tax hurts them more. But
well-performing States may either oppose a unitary law in toto or insist on a
revenue-sharing agreement that reflects their contribution to the revenue kitty
of the Central Government.
Those
who are in favour of a State-level GST have it that given our constitutional
scheme of things, it would be impossible to usher in a unitary GST. Some of them
even aver that a unitary GST would violate the basic structure of the
Constitution even if somehow a constitutional amendment in this regard is
steamrollered. These fears seem exaggerated. There is no reason why the
Constitution cannot be amended even though the UPA is not in the saddle in many
of the States. After all, in the implementation of the local VAT, opposition by
non-Congress ruled States were overcome patiently.
Moreover,
arming the Centre with the power to impose tax on what was earlier the States’
turf cannot be termed as violating the basic structure of the Constitution
because at the end of the day for administrative purposes States are going to
remain intact.
Beneficial
to consumers
All
in all, the unitary GST model would be conducive to better governance and
uniformity. Consumers of goods and services would find it beneficial with no
need to shop around for purchases in a tax-friendly State a la treaty shopping
by nations.
It
could have another spin off — rallying round the nation that is riven by caste
and regional divides. The unitary model would facilitate a single tax with a
single rate replacing as many as 36 tax statutes of the States and the Centre.
Excise,
sales tax and service tax can all be lumped together sparing the consumers of
the burden and tedium of dealing with numerous taxes and authorities. GST at the
Centre and the State levels, on the other hand, would only make a small dent
into the problem of multiplicity of taxes and authorities.
Confidence
building measures must be initiated in right earnest to win over recalcitrant
States and political parties. They must be convinced that the move is not an
assault on regional autonomy or on the idea of regionalism.
Source :
HinduBusinessLine, India,
dated 04/07/2009
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