GST may lead to fall in prices  

A Constitutional amendment will be required for the introduction of a dual goods and services tax (GST) system in the country, the Chairman of the Empowered Committee of State Finance Ministers, Dr Asim Dasgupta, said here on Saturday.

“A constitutional amendment is required. A working group will parallely look into this issue,” Dr Dasgupta told presspersons after a meeting of the Empowered Committee in the Capital.

This clears the air on whether a constitutional amendment would be pursued by the policy makers for introducing the GST system in the country. Under the proposed dual GST system, the Central GST will be levied on the entire supply chain, that is, up to the consumption level. Similarly, the States will get to levy State GST on services and imports.

Currently, the Centre’s Cenvat duty is only applicable at the manufacturing stage and not up to the retail sales level. Similarly, the States do not have the power to levy tax on services as of now.

At Saturday’s meeting, the Empowered Committee discussed in detail the nitty-gritty of the proposed GST structure relating to the list of exempted items, the threshold limit, the rate structure of GST items, particularly the State GST items, and how the services will be taxed without causing pain to the common people, how inter-State transactions should be taxed and how relief could be provided to trade and industry.

“It was a frank discussion. But we took the view that we needed another meeting, perhaps in the first week of September, to conclude this process and achieve full convergence,” Dr Dasgupta said.

As a whole, the States may gain in a significant manner from the introduction of GST. The Centre may also gain if the revenue neutral rate is properly worked out, he said.

“Incidentally, the overall burden of GST on the price of a commodity will fall. We want this to fall particularly in the case of essential goods,” he said.

Even as he maintained that efforts were being taken to introduce GST from April 1, 2010, Dr Dasgupta pointed out that “this was quite a challenge for both the States and the Centre”.

Asked about certain reservations expressed on GST by Tamil Nadu, Dr Dasgupta said he had gone to Chennai to hold discussions with the Finance Minister of Tamil Nadu and the Minister of State for Commercial Taxes. “I have explained and clarified some of the points they had raised.”

Meanwhile, on the issue of a constitutional amendment, a task force under the M. M. Punchi Commission on Centre-State ties was also looking into the matter, sources said.

“The definition of a taxable event will change in the proposed dual GST regime. The plan to go in for a constitutional amendment is the right approach. Otherwise, there will be litigation,” Mr Nihal Kothari, Chairman of Assocham’s indirect tax committee, told Business Line.

Source : Hindu Business Line, India,  dated 22/08/2009