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FE
has learnt that there have been meetings in the Board on
whether excise duty, a tax levied on producers, should be kept
out of the purview of the new tax.
The
difference of opinion within the indirect tax department is
highly sensitive, as finance minister P Chidambaram has spelt
out the central government's commitment to ring in the new tax
by 2010. Sources close to the development said excise duty is
not only a system of tax collection, but also works as a
fiscal tool, often used by government to promote certain
economic activities. Budget 2008-09, for instance, reduced
excise duty on sectors such as pharmaceuticals and automobiles
where growth was flagging.
If
excise duty is subsumed within GST, the government would not
be able to provide such incentives, goes the CBEC’s line of
argument. GST should, therefore, at the first stage consist
only of service tax, state-level taxes and duties. The views
came up during the finance ministry's internal discussions on
the report of the empowered committee of state finance
ministers on GST.
Experts
in the field of indirect tax were taken by surprise. “GST
should encompass both Central and state-level indirect taxes,
including excise duty, service tax, sales tax, motor vehicles
tax, etc. If the Centre and states exclude some of them, it is
not proper,” pointed out M Govinda Rao, director, National
Institute of Public Finance & Policy. The institute has
often been a sounding board for the government's fiscal
measures, including GST.
The
architect of GST, Vijay Kelkar, who is now chairman of the
13th Finance Commission, was not available for comment when FE
contacted his office.
A
GST regime without excise duty would not be successful is the
view of tax experts. S Madhavan, head of the indirect tax
practice at PricewaterhouseCoopers, said, “ It is our
understanding that the recommended model comprises all present
indirect taxes, including excise duty. It is clearly expected
that excise duty will form a part of the dual GST
structure.”
Earlier
this year, the committee of state finance ministers was
requested by Chidambaram to recommend a blueprint for the
rollout of GST after consultations with various states. The
committee recommended a dual structure, with separate rates at
the Centre and states. It suggested keeping a number of local
taxes such as octroi and entertainment tax out of the purview
of GST, but did not recommend excluding excise duty. Customs
duty does not fall within the ambit of GST. While a final
decision on the rate of GST is yet to be taken, it is expected
to be close to 20%.
Source
: Financial Express - Bombay, India, dated 07/08/2008
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