GOODS AND SERVICE TAX -HOW AND WHY????

CA SUDHIR HALAKHANDI , Last updated: 28 August 2009
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GOODS AND SERVICE TAX: - HOW AND WHY???
- CA SUDHIR HALAKHANDI

In 2006 when the then Finance Minister Mr. P Chidambaram announced the intention of the Government to introduced Goods and Service Tax in India in 2010, the pronouncement was very simple and from his announcement the initial indication was that the transformation to the GST would be a routine affair and after the successful introduction of VAT the GST will be introduced and accepted very smoothly. See the part of Budget speech of Mr. Chidambaram:-

"It is my sense that there is a large consensus that the country should move towards a National Level Goods and Service Tax (GST) that should be shared between the Centre and the states. I propose that we set April 1, 2010 as the date of introducing GST. World over, Goods and Services attract the same rate of Tax. This is the foundation of GST. People must get used to the idea of a GST. We must progressively converge the service tax rate and Cenvat rate. I propose to take one step this year and increase the service tax rate from 10 per cent to 12 per cent. Let me hasten to add that since service tax paid can be credited against service tax payable or excise duty payable, the net impact will be very small."

It is very strange that about which consensus Mr. Chidambaram the then Hon. Finance Minister was talking because till today the task is not easy and further see today on 28th Aug 2009 the present Finance Minister Mr. Pranab Mukharjee has said :-

The Union Finance Minister, Mr. Pranab Mukharjee, on Thursday said that the State-level differences regarding Goods and Services Tax continue to exist even after the meeting of the Empowered Group of State Finance Ministers. Speaking at an event, organised by the Federation of Indian Chamber of Commerce and Industry, Mr Mukherjee said, “At the national level, there is a certain amount of convergence but this is yet to be reflected at the State-level. Even after the meeting with the Empowered Group of State Finance Ministers, we are yet to reach consensus. However, we are working hard towards sticking to the target date of April 2010 to implement the GST."
–www.thehindubusinessline.com

See here that the GST is essentially the central tax and in true sense it can only be introduced under the central authority only but in our system “National GST” is not possible because both central and state Governments have the right and in fact imposing the tax and see the present taxation system of our country :-

Taxes: Central Government	Taxes: State Government
1. Central excise and Customs	1. VAT (Sales Tax on Goods)
2. Direct Tax: Income Tax including corporate income Tax and others	2. Tax on interstate sales (CST)
3. Service Tax	3. Local Taxes

Since the GST is related to the Indirect tax only hence at central level the affected taxes are Central excise and customs and Service tax and at state level VAT and local taxes will be affected and since in any case states will not accept the situation in which instead of imposing and collecting the tax they will share the tax collected by the Central Government. Hence in the Budget -2009 speech the Hon. FM Mr. Pranab Mukharjee talked about the final decision for an alternate i.e. dual GST See part of his budget speech having reference of GST :-

85. I have been informed that the Empowered Committee of State Finance Ministers has made considerable progress in preparing the roadmap and the design of the GST. Officials from the Central Government have also been associated in this exercise. I am glad to inform the House that, through their collaborative efforts, they have reached an agreement on the basic structure in keeping with the principles of fiscal federalism enshrined in the Constitution. I compliment the Empowered Committee of State Finance Ministers for their untiring efforts. The broad contour of the GST Model is that it will be a dual GST comprising of a Central GST and a State GST. The Centre and the States will each legislate, levy and administer the Central GST and State GST, respectively. I will reinforce the Central Government’s catalytic role to facilitate the introduction of GST by 1st April, 2010 after due consultations with all stakeholders.

If this is the fact and still there is no perfect format is searched then how we will move towards GST in 2010. Further if there is dual GST then it will be a Goods and service Tax comprising the Central Excise and service tax at central level which is at present is also Vatable and VAT and local taxes at state level . See at state level also the local taxes other than the VAT is not so important then the question is that WHY we should move towards GST and how it will give less complicated indirect tax regime to the trade and industry. Further if certain services are given to state for tax then also it will create only complications to the trade and industry. So the final verdict should be instead of going for this HOW and WHY to make a national consensus for National GST and till it is achieved the activity should be stopped.

-SUDHIR HALAKHANDI