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The
draft recommendations were accepted on Wednesday by the
empowered committee of state finance ministers. The
recommendations will be submitted to the finance ministry
next month.
The
agreement — after seven months of consultations between
central and state government officials — marks a
significant step towards introducing a country-wide
harmonised consumption tax system to replace the parallel
and multiple systems of indirect tax at the Centre and
states.
The
GST structure will be finalised by December 2008 and the
rates will also be finalised around that time.
Once
implemented from April 1, 2010, India will essentially
have three major taxes — tax on personal and corporation
incomes, GST and property taxes.
The
recommendations have modelled the new GST administration
on the Canadian system.
Under
this, there will be a Central GST Authority and a State
GST Authority. Taxpayers will have to file the same GST
return to both the authorities.
For
administrative convenience, the state authority will
collect both central and state GST on all goods and pass
on the centre’s share.
Similarly,
the central authority will collect GST on all services
(except primary public health and primary public
education) and pass on the states’ share.
Taxpayers
will be issued a unique permanent account number (PAN).
GST
is essentially a value-added tax that requires producers
to pay tax only on the value they add to the goods or
service in place of the current system in which central
and state imposts cascade on the price of the final
product.
For
example, a shoe-maker may pay a leather producer Rs 110
for processed leather of which the local tax component is
Rs 10.
The
finished shoe that now costs, say, Rs 150, has a tax
component of Rs 30. The shoe-maker will pay the GST
authorities Rs 20 and retain Rs 10, which is the tax
(input credit) he paid for the processed leather.
Although
all the states except Uttar Pradesh have adopted value
added tax (VAT), there is some level of double taxation as
VAT was levied on cost plus central excise. Central excise
was levied up to production stage and therafter state VAT.
Under
the new GST regime input tax credit will be available from
both the central and state authorities and there will be
no double taxation.
However,
the joint working group’s recommendations have stated
that there will be multiple tax slabs under the proposed
GST at central and state levels.
This
is because there are certain categories of goods — like
medicines and drugs — that need to be charged a lower
tax than the standard GST rate.
Likewise,
taxes on inter-state sales will be destination-based and
entitled to input credit unlike the current regime under
which central sales tax are added on to the cost of final
goods.
For
example, if a taxpayer from Rajasthan buys goods from
Gujarat, Gujarat will collect the GST and pass it to
Rajasthan through an intermediary bank. The data will be
available with the state GST authority so that traders can
avail of the input tax credit.
Exports
will be zero-rated and will be relieved of all embedded
taxes and levies at both the central and state level.
The
central taxes to be subsumed under GST are central excise
duties, additional excise duty, countervailing duty,
central sales tax and service tax.
State
taxes to be subsumed under GST are value added tax or
sales tax, entertainment tax, luxury tax, octroi, entry
tax, taxes on lotteries, betting, gambling and purchase
tax.
State
entertainment tax will be abolished and it will come under
services under GST.
Currently,
half-a-dozen states levy purchase tax on buyers instead of
sellers, which cannot be reclaimed as input credit. This
tax will be abolished within a time frame and the tax will
be covered under GST and will be open to input credit.
Source
: Business Standard - Mumbai, Maharashtra, India, dated
30/11/2007
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