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Further,
the Federal and the State GST will, in turn, be comprised
of a goods tax and a service tax. Thus, both taxes will
apply on goods and services. It appears that the Federal
GST and the State GST will both comprise of multiple
rates, insofar as they relate to goods, and will comprise
a single rate, insofar as they relate to services. Full
input tax credits would be available in regard to the
Federal GST and the State GST, which will operate in
parallel.
The
recommended model may, thus, not be materially different
from what is currently the position, from a rate structure
standpoint. At present, both the excise duty as well as
the State VAT have multiple rates, with a typical 8 per
cent/16 per cent two-rate structure for excise, and a
typical 4 per cent/12.5 per cent two-rate structure for
the State VAT.
There
are, of course, other rates that operate in excise and
VAT, on a limited set of products. It appears that the HSN
will form the basis for product classification for both
the Federal and State GST. There is no communication on
the GST rates as yet.
On
the services front, it is not clear as to whether the
Federal and the State GST will apply on the same set of
services or they will operate on a mutually exclusive
basis. Also, the present rate of service tax is 12 per
cent and it is a moot point as to what the single rate of
the Federal and the State GST will be on services.
The
cumulative incidence of the excise duty and the State VAT
at present works out to between 26 per cent to 28 per cent
of the retail sales price. There is an expectation that
under the GST, the aggregate incidence of the tax will be
significantly lower.
There
is much debate on the likely aggregate rate of the GST and
there appears to be a consensus that it may approximate 20
per cent. The additional benefit, apart from the reduction
in rate, is that the base on which Federal and the State
GST will be charged will be uniform and this will ensure
that there is no cascading, i.e. there is no tax on tax.
Apart
from the uncertainty on the rates, there is also a lack of
clarity as to how an assessee is expected to discharge his
obligation to the dual GST. If the base on which the two
taxes will be charged is to be uniform, it would imply
that the tax ought to be collected at a common point in
time. Indeed, the single most important benefit of the
dual GST, from a compliance standpoint, is that the
obligation to pay both taxes will be discharged based on a
single tax document.
What
is therefore required to be determined is the taxable
event, which gives rise to the two taxes. The
understanding is that the taxes will both apply at the
point of sale. Internationally, the GST is typically
predicated on supplies of goods/services, rather than on
sales, and there are fairly elaborate rules governing the
time and place of supply. It is very likely that the dual
GST in India would also incorporate detailed rules in
relation to determination of the taxable event and also
the taxing jurisdiction.
This
aspect of jurisdiction is an important one, since the
State GST will operate within the specific boundaries of
the respective State. It will, therefore, be important to
determine which particular State will be able to charge
and collect the applicable GST, in relation to an
inter-State transaction. One answer is that the State in
which the goods are consumed would be eligible to collect
the GST. This is however not the end of the matter since
the Central Sales Tax, which is an origin tax, is proposed
to be discontinued with the advent of the GST.
The
connected point is that the discontinuation of the GST
will need to be accompanied by the introduction of a
possible import VAT so as to track and monitor inter-State
transactions. There are several variations of this import
VAT, including that of a reverse charge by the importer in
the recipient State, which may be considered for adoption
and the recommendations will hopefully throw light on this
aspect.
There
are various other aspects relating to the structure of the
GST that need to be clarified by the Committee. Once the
recommendations are out, a vigorous debate is expected on
the design elements of the dual GST. Further articles in
this column will focus on the other non-structural
elements of the dual GST model that is proposed.
Source
: Business Standard - Mumbai, Maharashtra, India, dated
10/12/2007
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