GST - The Roadmap and Roadblocks
The Goods and Services Tax which is more popularly known as GST has been hitting one roadblock or other ever since Mr. Chidambaram the then Finance Minister hinted at introduction of GST at the earliest possible date in one of his budget speeches a few years back. The idea of moving to a GST regime was welcomed by trade and industry circles. The objective was clearly to frame a single levy for goods and services which would go into ensuring better collections with efficient administration of such a tax regime. Unfortunately, the progress in this direction has been very tardy and disappointing so far. After the implementation Value-Added Tax (VAT) which too saw similar resistance on the part of some states to be eventually persuaded to accept it, the GST appeared to be the logical next development. There have been several tentative deadlines for introduction in the past years raising hope s that it would be a reality but uncertainties continue to cloud it with the Union Finance Minister holding out no firm hope in his budget speech this year. It is all the more regrettable that some states continue harbor misgivings on technical aspects of encroachment of autonomy of states in the fiscal sphere overlooking the direct benefits that would accrue from the adoption of such a regime. A balance needs to be struck between harmonisation of rates and concerns over the States' fiscal autonomy.
What is Goods and Services Tax - GST? It is a tax which aims at integrating several indirect forms of taxes. As we all know the state imposes two kinds of taxes one is direct and another is indirect. For example Income Tax, Wealth Tax are forms of direct taxes while Central Excise, Customs Duty,Vat are all indirect ones. With the successful introduction of Value Added Tax ( VAT) in all the states of Indian Union. There were serious thoughts as to integrating and introducing a single tax which is based on the concept of VAT which is to eliminate the cascading effects of a tax. Under the present system of VAT - all the taxpayers excepting the final consumers enjoy input credit. To illustrate this point further - the manufacture A buys a certain raw material from B and pays Rs.200 by way of VAT which is known as input credit and he goes on to make the finished product and sells that to C and charges Rs. 400 by way of VAT. Here A is liable to deposit the VAT collected from C who is the final consumer and does not enjoy any input credit being the last in the chain. But A is liable to deposit only Rs.200 out of the amount collected from C as he is entitled to claim input credit of Rs. 200 paid to B.
It is evident that what the Union Government proposes to do is to bring together a diverse range of taxes which are liable to be levied on goods and services. At present there are taxes like Entry Tax, Purchase Tax, Luxury Tax etc. The desirability of having one tax for so many taxes is really great from the point of view efficient administration and augmentation of collection. The taxpayers would greatly benefit out of a stable regime avoiding complications characterizing varying rates, too many controls spawning corruption.
Several issues have prevented the early implementation of GST in India the most important of which is the perception of some states as to curbing of its constitutional mandate to raise revenue under a few subjects which figure in the State List of our constitution. The objections are raised mostly on not so sound grounds. Imposition of state taxes under the fiscal powers framed in the constitution is done with a narrow focus overlooking the interest of trade. industry and commerce. There are some taxes whose cost of administration is so high that it hardly contributes to the state exchequers in real terms and just establishes a Babu Raj! The short-sighted politicians also make liberal use of these powers mainly to corner electoral gains. The Central Government has been trying to convince the recalcitrant states to see the larger goal of facilitating trade,commerce and industry by promising appropriate compensation. According to the scheme of the Central government the states would be compensated any loss of revenue for the first three years after the introduction of GST. But the picture is not very clear about what happens after this period. A few states demand the right to impose supplementary taxes to meet specific needs as all the states are not similar in the matter of industrialization and other aspects which is not favored by the Centre.
There is a strong case for introduction of GST as all goods and services the list of which is ever growing and with increasing tax base with the prospect of higher tax revenue being shared by the states. But the problem which the UPA government faces in taking a firm stand on this issue is the present composition of parliament. Without an amendment in the constitution it is not possible to make any forward move which requires two-third majority in both houses of parliament.
Looking at the global scene there are many countries which do not have a single GST. The United States presents a case where there is neither GST nor VAT and all the states have sales tax the rates of which vary. Canada has more than one GST in different provinces. The countries in the European Union too have the power to impose VAT at varying rates. Only China and Australia have the single regime of GST.
It is quite evident that each country has its own way of dealing with situations. In India multiplicity of taxes in different taxes does make a strong case for early introduction of such a single tax model which would give a big boost to the level of industrial activities in all the regions of the country. An ideal GST should be alive to the social realities of adding no tax burden on the essential items and target luxury ones by imposing higher rates. Let us hope that a consensus would soon emerge between the states and the Union Government paving the way for early introduction of GST in Inda
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