Eminent tax professionals have asserted at a conference on ‘Proposed GST — Next Steps’ organized by Indian Merchants’ Chamber that the Government would not be able to introduce Goods & Services Tax (GST) on the targeted date of 1st April 2010, because not only there are disagreements on major conceptual issues, but also there is the complex issue of formulation of the ground level rules to suit requirements of diverse economic and social sectors in different states. And at the top of it all, the change would also require amendment of Constitutional provisions, which is admittedly a difficult and time-consuming process.
At best, the Government might be able to replace the existing set of indirect taxes with GST only with effect from 1st April 2011. Instead of rushing forward hastily, it would be wise to plug all loopholes, tie all the loose ends and build a strong national consensus based on equity and fairness, they observed.
Dr Partho Shome, Chief Economist of HM Revenue & Customs (HMRC) and formerly a member of the Empowered Committee in India, put it succinctly: “Unless all components have been fully put in place, the GST picture in India will remain incomplete. Introducing a tax system comprising a complex tax structure and multiple rates, coupled with not so simple tax administration and unclear rules, while calling it GST is not merited in an advancing country like India.”
He emphasized that the domestic and international industries were vehicles of supply to a rapidly expanding market of goods & services, and that the government should facilitate that supply chain. “Any GST reform must have that perspective,” he said.
Mr Sanjay Bhatia, Sales Tax Commissioner of Maharashtra and a member of the Empowered Committee, said that many states were opposed to Constitutional Amendments needed for introducing GST. “It can’t happen on 1st April 2010; any time in the midyear won’t be appropriate”, he said.
The conference organized for discussing the ‘Next Steps of Proposed GST’ was also addressed many distinguished persons including, Ms Renu Narvekar, Senior Vice-President of HSBC, and Mr Jayraj S Sheth, Head ( Indirect Taxation) Reliance retail Ltd.
IMC President Mr Gul Kripalani, who welcomed the speakers, was all praise for the government’s desire to introduce GST at the earliest, but cautioned that the road towards realizing the goal was full of thorns, all arising from the highly complex politico-economic realities of our country. “It has to be seen how the government deals with the task and ensures that the nationwide introduction of GST will be a smooth process,” he said.
GST would help India become a common market, achieve economies of scale, and enable the country to score in the global market for labor-intensive manufacturing. The new taxation system would also help avoid cascading of taxes , improve the ratio between tax revenue and GDP, boost exports, and invite FDI, he said.
Ms Bhavna Doshi, Chairperson of IMC’s Indirect Taxation Committee, who introduced the discussion, said there were a host of difficult unresolved issues such as the fixing the Central GST (CGST) and state GST ( SGST), the threshold limits of exemptions, the list of goods and services to be covered under the exemptions limit, the transitional provisions for treatment of accumulated Cenvat credit, the nature of the dispute resolution mechanism, and the Centre-State mechanism for deciding on future changes in vat and changes in the exemption list for goods & services.
The scheme of the proposed GST first came to light with the release of a discussion paper by the Empowered Committee (EC) of state Finance Ministers in November 2009, and of the report of the Task Force by the 13th Finance commission in December 2009.
The proposed GST would have the following broad features: It would be a dual tax with two parts — CGST and SGST — also a destination-based tax in respect of SGST. It would be levied on a common base and common taxable event , i.e., supply of goods. CGST credit could be used for paying SGST duty’ and SGST credit could be used for paying SGST duty in respect of intrastate trade, she said.
Ms Doshi said the proposed CGST would subsume the existing central excise duty, additional excise duty, excise duty levied under the Medical & Toiletries Preparation Act, service tax, countervailing duty ( CVD), special additional duty of customs ( SAD), surcharges, cesses, but would exclude duty on petroleum products.
On the other hand, SGST would subsume the existing State Vat, entertainment tax ( excluding those levied by local bodies), luxury tax, taxes on lottery, betting & gambling, the State cesses & surcharges relating to the supply of goods & services, and entry tax ( which was not in lieu of entry tax), but it would exclude tax on alcohol.
Dr Partho Shome, who is now working for the British government, presented a detailed account of the distinct features of the indirect tax schemes in force in UK and also in Brazil, if only for comparing with India’s GST scheme. He said that the British system was highly sophisticated and precision-oriented, and was unitary in character, while the Brazilian system was extremely complex, in view of the country’s federal character and diversified tax base.
He recommended that the ideal structure of GST in India should would be:
(a) At the Central level, CGST should have one general rate and one lower rate; and all goods & services as a rule should be taxed at general rate. And full ITC should be allowed across multiple units of a firm.
(b) At State level, SGST should also have a general rate and another lower rate; and all goods & services as a rule should be taxed at general rate across the state. Also CST should be abolished, and interstate trade should be effectively monitored with the help of IT infrastructure.
(c) Also, it would be necessary to install a clearing house at the Central government level or at selected banks, for accounting and payments of intrastate trade.
Dr Shome continued:” What is needed is a GST which is appropriately designed with the recognition of practical aspects, has modern, consistent procedures, and rules resulting in low administrative burdens and compliance costs, uses IT intelligently for both better compliance and for facilitating taxpayer participation, and yet be revenue productive for the exchequer. This should be feasible with continuing discussion among the Centre, States and taxpayer stakeholders.”
Mr Sanjay Bhatia said that introduction of GST would require amendment of the provisions of the Constitution, and the Centre was trying to bring all States to a consensus.
“Maharashtra is mostly aligned with recommendations of the Task Force, except in respect of RNR. Our state is also demanding a single authority for GST, contrary to the Central government’s plan for dual authority. Why should there be two assessments by two authorities for the same transaction?,” he asked.
“The fixing the threshold limit for taxation is a contentious issue. Any discussion on fixing the GST rates is tantamount to opening the Pandora’s Box. Our state has taken the stance that we need only a single rate,” he said.
Responding to an observation by a member of the audience, Mr Jayraj Sheth agreed that GST would indeed subsidize the white goods sector at the cost of services sector, and perhaps the manufacturing sector would benefit at the cost of the common man.
“But that should not be an argument against GST. The government should have a separate system for delivering benefits to the common man, and tax system should not be used for achieving socialistic objectives. The taxation system should be simple and easy to implement,” he stressed.
Source: https://www.imcnet.org/aboutIMC_news.asp?newsid=390
