GST.. in its way…

[Mr. M. GOVINDARAJAN]

INTRODUCTION:

The Central Government has fixed the target to implement GST by 1st April, 2010. Even though the Finance Ministry thought that the roll out may be taken beyond the targeted day it is still in the hope of implementing by the fixed date. The following are the challenges are to be faced:

* Constitutional provisions;

* Tax assignments vis-à-vis revenue sharing;

* Overall level of rates of tax;

* Type of rate structures;

* Development of a common market and

* Successful operation of tax information exchange system

as reported by Dr. Shome.

CONSENSUS:

At present consensus has been emerged on the proposed goods and service tax structure between the Central Government and the State Government-

* To adopt a dual rate structure - a lower rate and a standard rate for goods at the inception of GST;

* To have a common list of exemptions for both Central GST and State GST

The exemption threshold for both GST to be uniform at ₹ 10 lakh.

UNIFORMITY:

The Centre proposes to keep CGSGT lower rate for goods at 6 per cent and standard rate at 10 per cent. Services will be taxed at 8 per cent. The Centre urged the States to keep the said rate structure. For the second year the standard rate for both GST may be reduced to 9 per cent while retaining the lower rate at 6 per cent. During the third year the standard rate may be reduced to 8 per cent and lower rate increased to 8 per cent both GSTs. Thus in a phased manner a single CGST and SGST for both goods and services will be achieved.

COMPENSATION:

GST is an ideal choice for industries, one that would lead the growth of India,. The overall taxation rates would dip in the long run. The Empowered Committee is highly confident that the collection of taxes will be far higher that what it is now. This is mainly because ambit of taxation will be widespread than before.

The Centre is willing to set aside ₹ 50,000 crore to compensate the states eventuality of any dip in their share of revenues in 2013, ₹ 40,000 crore in 2014 and ₹ 30,000 crore in 2015. This they have done out of the confidence that revenues of both the States and the Centre will not be impacted.

PETROLEUM UNDER GST:

On 04.08.2010 the Hon'ble Finance Minister announced in the Lok Sabha that petroleum products should come under the GST net. For this decision the Finance Minister justified as that he felt that the variation in petroleum product prices across the country could be taken care of if the Centre and the States bring petroleum products within GST and this will be the win-win game. He further added that GST can address the problems of the fluctuating price at least domestically. This is the decision against the consent given by the Centre and the State to keep petroleum product out of the GST net.

GST COUNCIL:

The Centre will create a GST council headed by the Finance Minister. The Council will have Finance Ministers from 28 states. The Council is to decide on the GST rates and other key issues like changes in the GST rates.

VETO POWER:

In the meanwhile the Finance Minister held that the Centre will have the veto power on matters of State GST. This move has been opposed by the States including Madhya Pradesh, Bihar, Punjab, Tamil Nadu and Gujarat. The State Governments are against the infringement of their autonomy. The Finance Minister told the Rajya Sabha on 5th August, 2010 that he did not want to be a 'super FM', the veto had to be with him so that the final say in the GST Council remains with the Centre. There should be some mechanism to ensure that the Union Finance Minister is crowded out.

INFORMATION TECHNOLOGY:

The Chief of Unique Identification Authority of India assured the CBEC to develop the information technology system for GST in a war footing to meet the April 2011 deadline. This would link the indirect system in the Country. These indirect tax systems will be replaced by one GST.

CONSTITUITIONAL AMENDMENT:

If GST is to be introduced with effect from 1st April, 2010 the constitutional amendment should be introduced in the Parliament in this session. The Constitutional amendment bill is to be examined by the Standing Committee and ratified by 15 states.

There may be four options in the Constitutional amendment:

* I option - allowing centre and states to levy and collect GST via entries in the Union and State lists;

* II option - to implement GST by creating a fourth list called simultaneous list;

* III Option - to empower Union and States to levy GST notwithstanding constitution;

* IV Option - centre and states to enter into an agreement by amending Article 278(A) to implement GST.

The formation of GST council and veto power will be form part of the constitutional amendment. The states are not satisfied with this.

This is for the time since the Constitution was enacted that a tax base is proposed to be shared between the centre and states. In the concurrent list both the centre and states can have legislation on an item such as the Stamp duty, but the tax rate is decided under the respective lists.

Changes may be there in the way of implementation of GST. We may hope that GST will be introduced with effect from 1st April, 2011 with the combined efforts of the Centre and the states.