India ‘slowly’ inching towards GST: Sushil Kumar Modi
Source:Businessline
Standing Committee of Finance will present the Bill before the monsoon
session
Mumbai, June 2:
India is inching towards the Goods and Services Tax regime, Mr
Sushil Kumar Modi, Chairman, Empowered Committee of State Finance Ministers,
said in his inaugural address at a conference organised by the Indian Merchants’
Chamber here.
Mr Modi, who is also the Deputy Chief Minister of Bihar, said that
States are not fundamentally opposed to GST. However, there are a few concerns
of the States that the Centre must address. “Hence, there cannot be a concrete
deadline for introduction of GST.”
States fear that their fiscal autonomy might be compromised. This
is because there is “trust deficit” between Centre and States. For instance,
when the Central Sales Tax (CST) was cut to 2 per cent from 4 per cent on
introduction of VAT (Value Added Tax), the States demanded Rs 19,000 crore for
loss of revenue. The Centre, however, gave only Rs. 6,000 crore.
States have demanded that they be compensated for five years for
any loss in revenue due to introduction of GST. They also demand that the
compensation clause be included in the Constitution amended Bill. “This is the
biggest challenge,” Mr Modi said.
Mr Modi said that even the Centre will lose some of its fiscal
autonomy. There will be a GST council which will decide the central GST as well
as the state GST. Since the council will have majority members from the states
and only 2 from the Centre, views will be (more) representative of states.
Introduction of GST will make imports cheaper and make exports
more competitive. It will add about 1 to 1.5 per cent to the gross domestic
product (GDP). As of now, there is no national market in India. GST will make
inter-state trade more seamless.
CONSTITUTIONAL AMENDMENT NEEDED
Currently, the Centre is not empowered to collect taxes on sale of
goods. Similarly, States are not allowed to levy taxes on supply of services and
imports. Hence a constitutional amendment is needed to empower the Centre and
the States to levy taxes on both goods and services.
To protect the federal structure, the 115th Amendment Bill -- 2011
provides that both States and Centre will have the powers to levy taxes based on
revenue considerations. The tax rates and other technicalities like avoiding
dual taxation will be worked out in due course.
GST NETWORK – THE KEY
Mr Modi said, "Businessmen and traders are sceptical that the
proposed GST, where both the Centre and States have the power to levy taxes,
will lead to dual control."
To put fears like these to rest, a robust IT infrastructure is
required so that the tax paid is reflected in the systems monitored by the
centre and the state.
The implementation of the GST network, led by Nandan Nilekani,
will be complete by August this year.
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