GST: Going Still Tough

[Abhishek Jaju]

November 10, 2009 was much like an anticipated momentous day with the industry and professionals hoping a Pandora box to open. Now the discussion paper on GST has been in the public domain for quite an amount of time and the views from the industry have started pouring in.

The arrival of this paper is slated to become one of the historic events in the taxation history of the country. Bringing in tax sector reforms has been on the radar of the present Central Government. The draft Direct tax code is already out and inviting reactions/ suggestions from cross sections of the country. And now the other big thing is on Indirect tax front- considered to be much more sensitive and strategic since touches a large stratum of population.  First the Finance Ministry is to be congratulated for carrying out the regime of service tax with the onerous amendments to the Finance Act, 1994 year after year. Till few years back the talks were of bringing a full fledged service tax law and now we are discussing an altogether new composite tax on goods and services.

It appears from the paper that the Finance Ministry has made tremendous efforts to bring out the concept of GST in India and the EC/ Jt. Working Group/ Sub Working Groups have burnt the midnight oil along with marathon meetings of State FMs.

The state VAT design is based largely on the blueprint recommended in a 1994 report of the National Institute of Public Finance and Policy, prepared by a team led by Dr. Bagchi. In recommending a state VAT, the Bagchi report clearly recognized that it would not be the perfect or first best solution to the problems of the domestic trade tax regime in a multi- government framework but that was the only feasible option at that hour.

·         Journey of Value Added Tax in India:

 

01.03.1986	Introduction of MODVAT on selected no. of commodities
2002-03	CENVAT covered all the commodities
CCR, 2004 (w.e.f. 10.09.04)	Service tax/ Excise Duty adjustment available
01.04.2005	Implementation of state level VAT (in most of the states)
01.04.2010	Scheduled Implementation of GST

The prominent reasons which appear in bringing the new system of Composite taxation can be summarized as under:

·         Removal of cascading effects- which is one of the serious flaw in present system

·         Wider tax base

·         Simpler compliance

The concept of manufacturing which has been a matter of bundles of litigation has lived its life. It is understood that the tax under the new system would only on transfer of ownership and supply of goods and services.

·         The Finance minister in his speech on the occasion of issue of the discussion paper stated that one of the essential features of GST should be availment of input credit seamlessly from manufacturing to retail …. The fact that inter adjustment of CGST and SGST would not be allowed is bit disturbing in context with the FM's speech. Also the issue of set off of input IGST against output CGST is not very clear.

The paper failed to throw light on the essentials like-

·         Rates of taxes

·         Threshold limit for services

·         Time Schedule for bringing in the draft, constitutional amendment, state laws

·         Bringing in consensus among the states

·         Manner of taxing inter-state services

Essentially GST is a single rate structure and would have been phenomenal step if tax at single rate was levied with the sharing of revenue between states and centre based on range of parameters.

Bringing in two concurrent jurisdictions would pose differences/ issues in the long term and things may not turn out to be that harmonious as believed in the discussion paper. It would be clear once the government comes out with the draft legislation- how taxing would be the new procedures under the new law. The Finance Minister has already expressed apprehensions of meeting the deadline of April 2010 and the voices of states have also cast aspersions on the wishes of the EC. The draft DTC and the Company bill- the concepts of which had been mooted a long ago have been given sufficient comfort period for adjustment in the existing setup. In view of this, GST which is relatively a new concept in the country and which encompasses radical transformation- may meet with challenges ahead and the participants in the bandwagon are not guaranteed a smooth ride.