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Miles
to go before GST is a reality
In a budget speech short on vision, the only whiff of reform came from the commitment to introduce a goods and service tax (GST) by 1 April 2010.
Alas! If the FM was hoping to prove his reform credentials by sticking to the
original deadline announced in last year’s budget, he fell drastically short.
We are so far from being
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ready
for GST that the April 2010 deadline just doesn’t wash.
To begin with, there is the question of setting
appropriate revenue-neutral rates and arriving at a
consensus (not easy when this involves all state finance
ministers) on whether this should be a single or a
multiple rate. There is also the issue of agreeing on the
threshold level at which GST should kick in. Since
thresholds vary under the central excise and state VAT and
between different states, this is not going to be easy as
there are wide economic disparities between states. There
is also the nitty-gritty in terms of IT capability at the
tax administration and the taxpayer level. As the
experience with VAT has shown, these will not be resolved
in eight months. Taxation of inter-state sales of goods
and services is another bugbear. GST, like VAT, is levied
at the point of final consumption. We need rules on how
the time and place of consumption is to be determined.
Additionally, central sales tax (presently 2%) has to be
scrapped once GST is introduced but the budget speech is
silent on this.
No less critically, there is the huge challenge of getting the necessary legislation in place. The Constitution does not allow the Centre to tax beyond the manufacturing stage. Nor does it permit states to tax services. So the Constitution must be amended to allow the former to tax at the retail level and the latter to tax services. Since such constitutional amendments have to be passed by Parliament and a majority of the state legislatures, it will be well-nigh impossible to have the enabling legislation in place by April next. It is hard to believe the FM was really unaware of the hurdles en route to GST. So why he risked his credibility by promising a more difficult reform while giving more simple ones the go by remains a mystery.
Source :
Economic Times - Gurgaon, Haryana, India,
dated 08/07/2009
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