VAT panel for dual Goods & Service Tax structure

The Empowered Group of State Finance Ministers on Value-Added Tax (VAT) has accepted the report of the Joint Working Group, which favours giving both the Union and state governments the power to levy the Goods and Service Tax (GST) when it is implemented from April 1, 2010, instead of vesting the power with the Centre alone. The committee has agreed to a dual structure (a central GST and a state GST), West Bengal FM and panel chairman Asim Dasgupta said here today.

Speaking to reporters after the committee’s meeting here, he informed that it would send its recommendations to the Union Government next month. “I have asked all finance ministers to submit their suggestions in writing. We shall have a meeting again in December at which we shall finalise the report and then send it to the Prime Minister for his approval.”

Dasgupta added, “The rates for Central GST and state GST would be prescribed separately, reflecting revenue considerations and acceptability.” Like VAT, there would be a set off, ie the amount of tax paid on inputs would be reimbursed at both the Central and state levels.

Dasgupta also informed that Uttar Pradesh has decided to implement VAT. “The UP government has already sent the necessary legislation for the President’s assent,” he said. With this, every state and Union Territory has now become VAT compliant, paving the way for the GST.

Dasgupta also pointed out that once implemented, the GST regime will not subsume all taxes. For instance, several taxes like road tax, passenger tax, stamp duty and toll tax will be kept beyond its ambit. Similarly, the Government is likely to impose an excise duty over and above the GST on alcohol, tobacco products and petroleum products. Exports would be fully zero rated, ie relieved of all taxes. The taxes that will be subsumed by GST are central excise duties and additional excise duties, services tax, customs duty, countervailing duty (CVD), special additional customs duty, VAT, entertainment tax, luxury tax, octroi, lottery taxes, electricity duty, state surcharges and purchase tax.

However, there are still serious differences among the states on the issue. Immediately after the meeting, Punjab finance minister Manpreet Badal said, “Implementation of GST would undoubtedly be a great step but there are certain issues which we need to think on. For example, we have a purchase tax on food grains in Punjab. Since the state doesn’t have a big presence of industry, this levy which gives us something like Rs 500 crore-600 crore every year is very vital for us. Moreover, it is being paid by FCI; so it is not a burden on the farmer. We need to think about the purchase tax being subsumed under GST.”

The GST is aimed at streamlining the system by scrapping the need for paper declaration forms, cross-checking by the administration and transfer of funds from one government to another (in case of inter state transactions).

Source : Indian Express - New Delhi, India, dated 28/11/2007