HE CONGRESS-LED UPA government has just 10 months to
usher in a new goods and services tax (GST) regime to
create a seamless common market across the country.
Consumers will pay a single rate
of tax on goods and services sold across India, if the
government introduces the levy from April 1, 2010. Work
is in progress, with the empowered committee (EC) of
state finance ministers scripting a model and roadmap
for GST in India. The EC has recommended a GST with a
central and state component. And the Congress manifesto
refers to a “moderate” goods and services tax,
saying once GST is implemented, all other state- and
centrallevel indirect taxes, including VAT, excise duty,
service tax, luxury tax and so on will stand abolished.
Customs duty will be out of GST and is likely to be
replaced by VAT on imports. “A clear structure of GST
needs to be in place in the first 100 days,” said TR
Rustagi, former joint secretary in the finance ministry.
Echoing a similar view, S Madhavan, executive director,
PricewaterhouseCoopers, says the government should set a
clear timeline and declare a model GST. Four years ago,
states switched over to the VAT system, which has
bolstered their revenues and improved compliance. Goods
attract a 4% or 12.5% state VAT, while excise duty is 8%
for most commodities. Services are taxed at 10%. The
enactment of GST would mean integrating the service tax
legislation with the central excise law and harmonising
the tax rates. While this will require legislative and
constitutional changes, the move will reduce cascading
of taxes and give psychological comfort to consumers. A
well-designed GST will lower manufacturing costs. It
will also make businesses more efficient. An earlier
panel chaired by Vijay Kelkar, chairman of the
thirteenth finance commission, had mooted a GST of 20%.
The plan is to have a revenue-neutral rate that will
ensure states and Centre do not make any losses while
transiting to GST. Petroleum products and liquor are
outside VAT and a view has to be taken on their
treatment. States want petroleum products, which account
for over a third of the indirect tax revenues of the
Centre and states, to be kept out of GST. But the Centre
reckons that a large component of petroleum taxes can be
subsumed in GST. The differences are not surprising as
states want to make sure that their powers of taxation
are not diluted in any manner. Issues such as the power
of levy, collection and appropriation and sharing of
revenues between the Centre and states under GST are yet
to be sorted out. IT systems also have to be in place.
The draft GST legislation will then have to be
formulated in consultation with all stakeholders,
including industry.
