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When
viewed in the light of the discussions at a recent
meeting of the Empowered Committee (EC) held on August
21, 2009 wherein doubts have been raised about the
likely date of the introduction of the new tax, we have
to look into the major issues that have come up.
First, DMK, the ruling party in Tamil Nadu, has
questioned the legitimacy of the EC to decide the terms
and conditions of the GST. Second, concerns have been
voiced over the implementation date and the preparations
of both the Centre and the states for doing so. Finally,
there are various aspects concerning the nitty-gritty of
GST, viz., the rate of the tax, compensation to the
states and adequate administrative system.
It is, however, agreed by all that while India has
traversed a long way in reforming its complex commodity
tax system by introducing a dual VAT, the system is
fraught with certain weaknesses. First, due to the
separate taxation of goods and services there is the
need to split the value of transactions into the value
of goods and the value of services for taxation. This
leads to greater complexities, and higher administrative
and compliance costs. Second, due to the further
globalisation of the Indian economy, a number of Free
Trade Agreements have been signed in the recent years.
This allows ‘duty free’ or ‘low duty imports’ into
India. Hence, there is a need to have a nation-wide
simple and transparent system of taxation to enable the
Indian industry to compete not only internationally but
also in the domestic market. Third, currently CenVAT is
levied up to the manufacturing level only. This causes
cascading and also results in a lack of transparency in
the tax burden. It is, therefore, imperative to
introduce GST to remove all these weaknesses. The system
of GST would, therefore, be a step forward in the
reforms at the national as well as the sub-national
level.
Since the introduction of GST involves restructuring of
central as well as state taxes, the process calls for an
extensive process of consultation between the Centre and
the states. This is being attempted through the EC,
which is primarily a consultative body. As rightly
pointed out by the FM of Tamil Nadu, this body can have
no authority to force the states to adopt a particular
structure. In fact, unlike the initial formation of the
EC by a Resolution of Government (Gazette of India,
Extraordinary, Part I, Section I, dated 30th November
1999), the current EC is a Registered Society under the
Registration of Societies Act. It has no statutory
authority to supervise the states. It is, therefore,
important to have a supervisory body for the states to
ensure uniformity in rates and procedures. A statutory
body such as a GST Council of India should be set up
under the Constitution to supervise the states.
Source
:
Economic Times, India, dated
04/09/2009
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