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The first discussion
paper released by the Empowered Committee (EC) of State
Finance Ministers, says additional duty of customs
levied under Section 3 of the Customs Tariff Act, 1975
(i.e. CVD and SAD), will be subsumed under GST and set
off for the same will be available as Input Tax Credit
(ITC). At present also, Cenvat Credit of these duties
can be taken. So, GST may not make any difference there.
The paper says surcharges, cesses and service tax will
also be subsumed under GST. At present, credit of
service tax can be taken but credit of cess or surcharge
is not available.
Interestingly, the EC does not propose to subsume basic
customs duty (BCD) under GST. So, BCD is likely to
remain as a protective cushion for domestic producers
and as a cost for importers, with no Cenvat Credit
available of the same. To that extent, the export
promotion schemes like advance authorisation and duty
drawback may stay.
The discussion paper says exports will be zero-rated. In
other words, the present system of excise rebate or
removal under UT1/bond for export without excise duty
payment will continue in some other form. To that
extent, the GST may be no different. But, with several
other taxes like entry tax, cesses, etc getting subsumed
into GST, there could be gains by way of removal of
irritants and simplification of procedures.
It is too early to say how the proposed GST will handle
refund of unutilised credit on account of exports under
bond/UT1. At present, tax on certain services provided
during the course of exports are exempted. Whether
similar exemptions will be available under the new GST
regime is not clear. As a policy matter, the discussion
paper does not recommend exemptions and refunds. Even in
case of area-based exemptions, it recommends abolishing
these.
The EC, however, proposes that zero-rating of exports be
extended to Special Economic Zones (SEZ), too. However,
it is not clear whether supplies to SEZ from the
Domestic Tariff Area (DTA) will have to suffer GST. The
paper says zero rating will only be allowed to
processing zones of the SEZs. No benefit of zero rating
to the sales from an SEZ to DTA will be allowed, which
is the present position, too.
The discussion paper envisages exemption threshold
limits for manufacturers (Rs 1.50 crore) and service
providers (Rs 10 lakh) and compounded cut-off rates (0.5
per cent) for small dealers (turnover up to Rs 50 crore).
So, many of the present complications in the excise and
service tax laws are likely to survive in some other
form.
In any case, the proposed GST model envisages a
continuous chain of set-off from the original producer’s
point and service provider’s point up to the retailer’s
level, which would eliminate the burden of all cascading
effects. Major Central and State taxes will get subsumed
into GST, which will reduce the multiplicity of taxes,
and thus bring down the compliance cost. It deals with
inter-state sales in an innovative manner through an
Integrated GST (IGST).
The Union Finance Minister has assured in-depth and
meticulous attention to the report so that the structure
and design of GST are finalised quickly. His statement
raises everyone’s hopes.
Source :
Business
Standard,
India,
dated
16/11/2009
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