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The proposed scheme
suggests that the base of the two components of the
GST, viz. the Central GST (CGST) and state GST (SGST)
should be the same. In doing so, it calls for major
changes in the tax system of the Centre and the
states.
As for Central taxes,
the scheme proposes an extension in the base of
CenVAT from the manufacturing to the retail level.
While this change will provide about 20% additional
yield to the CGST, it will create some problems for
the administration of this tax at the retail level.
This is because
current levy of CenVAT on the manufacture is largely
non-transparent at the time of final sale to the
consumer. Moreever, the final consumer is aware of
the rate of the SGST only, which is currently 4%, or
12.5%. Therefore, extending CenVAT to retail and
converting it to a transparent tax with total tax of
16% plus 12.5% will increase the evasion of tax
considerably.
Regarding SGST, it is
proposed that in addition to sales tax-related taxes
(viz. purchase tax, entry tax etc.) three of the
state taxes (viz. state excise duty, entertainment
tax, and electricity duty), especially assigned to
the states under the Constitution, will be subsumed
under it.
This would tantamount
to surrendering the authority to levy these taxes by
the state government because the rate of GST for the
state component cannot be increased beyond what it
is levied at present. In addition, the Centre will
also be levying CGST on these items because as
claimed by the WG, the base of the two components of
the GST should be the same. This will increase the
total incidence of the tax and will affect the
consumer adversely.
It is neither
necessary nor required for the CGST and SGST. From
the point of states’ revenue, as these three
specific state taxes yield substantial revenue, in
the short-run, these should be left out of the tax
base for the GST. This is not a very positive change
from the point of states’ financial autonomy.
The idea that the base
of the CGST and SGST should be the same is not
adhered to in the case of service tax as well. The
JWG has expressed difficulties in giving the same
base to the states. In assigning all services to the
states, according to JWG, raises a new set of
issues, especially in cross border services.
While the
jurisdictional reach of the service tax is
determined on the basis of the place of consumption
of service, there are difficulties in clearly
determining the actual place of effective use and
enjoyment of service. In fact, administrative
convenience and the convenience of trade and
industry need to be factored in to determine the
place of collection of service tax. All said and
done, the states will not be given all the services
under the SGST.
In
this context, it is worthwhile pointing out that the
Centre has already promised to assign revenue from
33 services currently subject to service tax and
would be assigning 44 new services to them (as and
when taxed) as part of compensation for the
abolition of CST. It is so far not clear as to which
additional services will be given to the states?
Under these circumstances, the base of the CGST and
the SGST will not be the same.
To conclude, the
design of the proposed GST need not alter the basic
tenet of the Constitutional tax assignment. Let us
continue to follow the basic principle that the
taxes having an all-India base be given to the
Centre and the taxes having regional or local base
are given to the states.
In the short-run, the
base of the CenVAT need not be extended up to the
retail level. However, there is merit in extending
this base up to wholesale, as recommended by the Tax
Reforms Committee, 1991-93. Also, the proposed GST
should subsume only taxes related to state VAT, viz,
purchase tax, entry tax etc.
This will not affect
the ba-sic structure of tax assignment. In the
long-run, whenever, a comprehensive state
GST
is implemented wherein the Centre withdraws from the
scene of domestic trade taxes, all these taxes can
be subsumed in it.
Source
: Economic Times -
Gurgaon,Haryana,India, dated 04/02/2008
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