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However,
the key concern at present appears to be the
preservation of the principle of “fiscal federalism”, as
enshrined in the Constitution of India, which would
require significant amendments to empower both the
central and state governments to levy GST.
In 2003,
an amendment was made in the Constitution to empower the
central government to levy service tax by way of
insertion of Article 268A and Entry 92C to List I —
Union List of the Seventh Schedule. However, this
amendment was not notified.
While the finance minister said in his Budget speech
that the “design and roadmap” for GST has already been
prepared by the empowered committee of state finance
ministers, until recently states such as Tamil Nadu had
openly expressed reservations about moving to the GST
regime next year. To what extent the states will have to
be compensated for the loss of revenues due to the
abolition of the central sales tax is yet to be decided.
Unless a
formula for the compensation of losses is worked out
quickly, the consensus to move to GST is
inconsequential. The implementation of value added tax
at the state level was delayed on this account in the
past. Further, it is not even clear as yet if the states
themselves are preparing a roadmap for a GST rollout.
In fact,
too many exemptions and multiple tax rates will go
against the very principle of GST. Under the present VAT
regime, there are instances where the same product is
taxed at different rates in different states. Besides
this, certain states have also breached the number of
VAT rates.
It appears
that there would be a dual tax structure — a central GST
(administered by the Union government) and the state GST
(administered by the state government) with a limited
set of exemptions for basic foodgrains, basic education
and health services. However, if both the Centre and the
state share the powers to levy GST, the possibility of
classification disputes cannot be precluded and a
uniformity of GST rates may not be possible, resulting
in complexity.
A key
challenge under the dual GST model, therefore, concerns
the taxation of inter-state supplies of goods and
services. Since the existing taxable events under the
various indirect tax levies, such as excise duty and VAT
would no longer be relevant, it would be imperative to
formulate comprehensive rules of supply for the
inter-state provision of goods and services in order to
tax the same in an appropriate manner.
It is, by
now, well-recognised that successful implementation of
GST is based on substantive IT capability, both at the
tax administration level and at the taxpayer level. GST
being a destination-based consumption tax, capturing
details of inter-state transactions would be important.
A comprehensive IT system is, therefore, imperative to
share the tax-related information among the various
states in order to check revenue leakage and to ensure
compliance.
With only
a few months remaining before the proposed
implementation of the GST, it is imperative that a
“white paper” encompassing the deliberations so far in
arriving at the Centre-state consensus be placed in
public domain for debate and suggestions, as has been
promised for the direct tax code. This would enable
industry and trade to analyse the possible impact on
their business models and revisit supply chains to
galvanise themselves into action with a clearly laid-out
time-table for the GST rollout.
Source :
mydigitalfc.com, India, dated 17/08/2009
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