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While it
could complicate the structure by allowing for more sets
of tax rates, politicians believe it will be easier to
implement and push through their respective
constituencies. The Union government and states are
negotiating the contours of a GST that the Congress-led
United Progressive Alliance is committed to launching by
1 April.
GST is an attempt to economically integrate all the
states. Currently, states have the power to
independently levy indirect taxes on some goods. As a
result, some of the decisions made by companies have
more to do with tax avoidance than operating efficiency,
say analysts. Under GST, there will be uniform tax rates
on almost all important goods and services across
states.
Negotiations among states on the two rates are expected
to start at 5% on items of mass consumption, to be
levied separately by the Centre and states. Similarly,
states are expected to discuss a rate of 10% levied
independently by the Centre and states for the residual
items.
Before
some states floated the idea of segregating consumables
and charging different rates, many states were veering
towards a GST rate of 16%, with 8% levied separately by
the Centre and states.
The finance minister of a Bharatiya Janata Party (BJP)-ruled
state, who did not want to be identified, told Mint
recently that some of the ministers had an ideological
problem with a single GST rate on all consumables. How
does a politician convince a voter that a bicycle and
car would be taxed at the same rate, the minister
wondered.
At the other end of the ideological spectrum, T.M.
Thomas Isaac, finance minister of Kerala’s Left
Democratic Front government, which is made up of
different Communist parties, said he would like a lower
GST rate on items of mass consumption.
This would, however, require a uniform rate across the
country. For manufacturers and service providers, the
biggest advantage of GST would be the right to offset
state taxes paid on inputs sourced from another state.
Therefore, the items of mass consumption chosen to be
taxed at a lower rate would have to be uniform across
states for companies to offset state taxes on inputs
sourced from different parts of the country.
Negotiations on a uniform list of items of mass
consumption are likely to be tough.
The recent twist in the GST negotiations did not come as
a surprise. “The more you get into details, you realize
it is a mammoth task, even conceptually,” said Vivek
Mishra, who deals with the subject of indirect taxes at
consultancy Ernst and Young. Mishra said the recent
developments were just the beginning. “It is the latest
example of how difficult or how long the haul is going
to be. This (two rates) is a significant departure, but
it is only the first of the many we will see,” Mishra
added.
The state finance ministers have been negotiating the
GST blueprint under an umbrella group dubbed empowered
committee of state finance ministers, which meets at
regular intervals. Representatives of the Central
government also take part in the meetings.
Currently, the empowered committee is working on a
deadline of 1 April, but since June, there have been
signs that it might not be easy to make this transition.
Based on reactions from finance ministers of different
states and officials in both state and Central
bureaucracies after recent meetings of the empowered
committee, differences seem to have arisen on account of
a conflict of interest among states and the risk of
making the transition without a robust nationwide
information technology (IT) network.
Soon after transitioning to GST, some of the
economically weaker states might see a dip in revenue as
GST is a consumption tax. Therefore, some states such as
Assam have asked for open-ended compensation from the
Centre till their revenues stabilize as a price for
giving up the states’ power to independently change tax
rates.
Among economically stronger states, Gujarat has asked
for an IT backbone to be in place before transitioning
to the GST regime, while Tamil Nadu’s representatives
have said the April deadline is premature.
Source
:
Livemint, India, dated
30/08/2009
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