The Centre and state governments are considering a single authority to administer the proposed Goods and Services Tax (GST) to avoid traders and businesses from being subjected to control at both central and state levels with regard to the same transaction.
The proposed authority may be modelled on the Canada Revenue Agency and the Australian Taxation Office that administer GST in their countries.
To ease compliance burden for taxpayers, the Centre also wants the GST administration to be entirely based on self-assessment by taxpayers without state scrutiny. It reckons that businesses at successive points in a product’s entire value chain claiming input tax credit will ensue that all businesses would file the correct return and pay due taxes.
These plans are part of a indirect tax administration rejig at both the levels necessary to implement GST that would replace central taxes — excise and customs taxes (except basic customs duty) and service tax — and state and local levies, including the Value Added Tax (VAT).
Along with constitutional and statutory changes to give force to GST, the governments also need to put in place a suitable administrative machinery to implement it.
?The proposed single authority will have officers from both the union and state governments but their salaries would be paid by the authority. If officers draw salaries from different governments, they would serve the conflicting interests of respective governments, not to the cause of a single market that GST seeks to achieve,? said a person privy to the discussions between the Centre and states. At present, indirect taxes at the central level is administered by the Central Board of Excise and Customs (CBEC).
The Empowered Committee (EC) of State Finance Ministers deliberating on the design of GST will review the draft Constitution 115th Amendment Bill and discuss a host of issues at a two day meeting in Shillong starting November 18.
Sources said that EC chairman and Jammu & Kashmir finance minister Abdul Rahim Rather has asked state governments to give their written comments on the Bill at Monday’s meeting.
The Centre’s logic for making GST entirely based on self assessment is that if a supplier of raw materials does not file his GST return, his client will not be able to get credit for the amount of tax that got built into the cost of the raw material or service he purchased, while paying taxes on the final product. In order to competitive, the taxpayer-business would want his client to get the full input tax credit. So there is an in-built incentive for him to declare the true value. ??
The Centre is happy with self-assessment as it is working fine in the case of service tax, but states are reluctant to give up assessment and scrutiny of returns that is currently followed in the case of state level VAT.
In an ideal regime, self-assessment is the norm, says Bipin Sapra, tax partner, EY.
?The self-assessment system in the case of service tax generally takes care of payment of due taxes. There might be chances of evasion only where flow of credit does not take place or where the end product is out of the tax net,? said Sapra.
Globally, self-assessment of GST returns is implemented along with audit of select samples.
State governments were concerned about the compliance burden of small traders by way of subjecting themselves to central and state administrations that would tax the same transaction under GST.
Governments at both the levels are now grappling with the issue of finding an appropriate level of turnover to exempt small traders from GST without much erosion of the tax base so that the revenue neutral rate of GST to be levied need not be far too high. They are now discussing a turnover threshold of Rs 25 lakh, below which traders need not pay GST.
