Column: Getting GST off the ground

Dec 05 2013, 05:38 IST
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SummaryKeeping liquor out of GST could make sense but there is little reason to do the same with petro-products

The Centre and the states have been discussing the issue of introduction of GST for the last four years. The central government has already missed two deadlines for the rolling out of GST and there have been many ups and downs during this period. From a road block in the first quarter of this year, the GST was again on the right track. It hit a hurdle at the meeting of the Empowered Committee of State Finance Ministers (EC) held in Shillong on May 18. However, such hindrances should not be a matter of disappointment; they should not deter us from furthering the efforts for the introduction of GST. The history of reforms the world over indicates that tax reforms have neither been smooth nor quick in any country. The introduction of GST in India need not be an exception.

On the brighter side, both the Centre and the states agree that GST should be introduced. All the parties concerned do recognise the fact that the introduction of GST would be another important reform after the introduction of dual-VAT in India.

Its introduction would help remove the cascading effects of two VATs and the service tax. In fact, cascading under GST would be almost absent. Presently, cascading occurs under the Central VAT (CENVAT) due to the non-taxation of transactions beyond manufacture and the large exempt sectors under both CENVAT and state-VAT, which are not allowed to claim any input credit for the taxes paid.

The introduction of destination-based Integrated GST (IGST) in place of CST does not entail any ‘tax-exporting’ to the importing states. Therefore, it will not lead to an increase in the cost of production. Under the GST, all inputs (including capital goods) will be given set-offs. Also, exports would be zero-rated.

The GST would also usher in competitive efficiency in business. It will not generate definitional issues and valuation problems which have led to litigation under the present CENVAT system. In addition, taxation at the retail level instead of at the manufacturing level provides for a broader tax base leading to a neutral and efficient tax system.

The GST also has an advantage over the present system of taxation as services under GST would be taxed both by the Centre and the states and this helps to broaden the tax base.

Also, the effective tax rate will be the same for all commodities; it will not vary from

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