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Pre-Budget: Concrete declarations on basics of GST should be made in Budget-2015

CA SUDHIR HALAKHANDI 
on 27 February 2015

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Budget speeches since 2006 were used to declare a specific date for introduction of GST and the Trade and Industry is waiting for GST on the same promises as made in the Budget speeches of the Finance Ministers from year to year and now we are in year 2015 and still waiting for GST. Goods and Service tax was first referred in the Indian Budget by the Finance Minister in his budget speech in 2006:-

Budget-2006

155. It is my sense that there is a large consensus that the country should move towards a national level Goods and Services Tax (GST) that should be shared between the Centre and the States. I propose that we set April 1, 2010 as the date for introducing GST. World over, goods and services attract the same rate of tax. That is the foundation of a GST. People must get used to the idea of a GST.

The same assurance was repeated in 2007 also.

Budget speech -2007

116. I wish to record my deep appreciation of the spirit of cooperative federalism displayed by State Governments and especially their Finance Ministers. At my request, the Empowered Committee of State Finance Ministers has agreed to work with the Central Government to prepare a roadmap for introducing a national level Goods and Services Tax (GST) with effect from April 1, 2010.

If you read very carefully these two very first references of GST in the union budgets of India then you will certainly find that these two statements were made by erstwhile Finance Minister without any proper study of the situation and this is the sole reason that GST is delayed from year to year. These statements were made by FM, without consulting the States and without considering the fact that in India it is not easy to introduce the GST in its standard “Single tax” format because of our federal system of Governance.

In Budget-2015 there should be a effort to declare a clear and fresh roadmap for Goods and service tax because the Government has already moved a GST constitutional amendment bill in the Lower house of the parliament. Here the Finance Minister should specifically clarify about   the concrete plans of the Government to introduce the GST in the country and how it will be introduced in the country on a specific date by clearing all the hurdles in the road of GST. Since Government has declared its plan about GST in various documents including the GST constitutional amendment bill but since the most popular documents in our country with respect to declaration of any Taxation and Economic policy is Budget speech of the FM hence this year in Budge speech the Hon. FM should make a statements about basics of the GST.

Even after so many claims of the Lawmakers there are certain matters which are still unresolved between the states and the Centre with respect to the specific matters related to the GST. Here I am listing the certain specific matters of agreement and disagreement and resultant hurdles in the road of GST. All these should be discussed by the FM in the Budget speech so the Trade and Industry can get a better understanding of GST. This is the basic requirement for success of the GST in our country.

There is a settlement between states and Centre to introduce the “Dual GST” in which both states and centre will impose separate tax on every transaction of sale and service and this is not the “Standard form of GST” for which trade and industry is very eagerly waiting for years. The FM should declare very boldly in the Budget speech that we are going to introduce a “Dual GST” in the country in which both centre and state will impose tax on a single transaction of supply of Goods and Services.

The Central Excise under the GST which will be converted in Central Goods and Service Tax– CGST and further the tax will be imposed and collected up to the stage of Sale instead of present stage of Manufacturing. This extension of central Indirect tax up to the stage of sale coupled with lowering the threshold limit from the Rs. 150 Lakhs to Rs. 10.00 Lakhs (or nearby) will certainly enhance the scope of revenue of the central Government. Now in the Budget-2015 the Finance Minister should declare the proposed threshold limit for GST both under SGST and CGST.

Here I am referring VAT and Central Excise as state and Central Indirect Taxes to be subsumed in the GST since these two are major indirect taxes though the GST will cover besides Central excise the service tax, additional Excise duty, Excise duty levied under the Medicinal and Toilet preparation (excise duty) Act, 1955, additional custom duty commonly known as countervailing duty, special additional duty on customs and central surcharges and cesses related to the supply of Goods and Services at central level and besides VAT Entertainment tax, Central Sales Tax, Octroi and Entry Tax, Purchase Tax, Luxury Tax. Taxes on lottery, betting and gambling and state cesses and surcharges related to the supply of Goods at state level. This is mentioned in the Statements of objects of the GST constitutional amendment Bill tabled in “Loksabha” on 19th Dec 2014. Final shape in this respect can only be seen at the time of actual implementation of GST throughout the country. The FM should use the opportunity in his Budget speech to clearly define the sectors to be covered by GST.

Central sales tax was considered to be a biggest hurdle in the successful implementation of VAT throughout country and at that time of introduction of VAT it was promised that CST will be reduced by one percent from year to year and ultimately it will be scrapped and you can see that CST is the name of “Broken promises” because after reducing it from 4% to 3% and 3% to 2% it is there with rate of 2% from several years. There was a genuine hope that there will be a Goodbye to CST in GST but this hope is also broken and it is mentioned in the GST constitutional amendment Bill to give power to Central Government to impose a additional tax up to 1% on the interstate sales of Goods (only Goods) during the first two years of GST which can be extended for a further period as per the recommendations of GST. This tax will be transferred to the supplying state. How trade, industry and consumers know anything with certainty about the proposed GST in such an uncertain situations. If they want to impose a tax on interstate trade or commerce besides CGST and SGST then it will further distort already distorted form of proposed Goods and Service Tax in India. The finance Minister should declare in the Budget-2015 about the intention of the Govt. regarding imposition of 1% additional interstate Tax so that Trade and Industry can understand the impacts of GST properly. There should not be any “hide and seek” by the Government in this respect.

Further the GST amendment bill if, cleared by both the houses of Parliament then it will be sent to the State Legislative assemblies – Vidhan Sabhas for ratification of the same and if it is ratified by 50% or more state assemblies then it will be sent to the President of India for assent and that will clear the way of introduction of GST in India but still there is one very crucial question How the Central Government will make agree or compel the dissenting states, may be less than 50% of the total number of the states, to introduce GST because unlike VAT, GST can only be introduced throughout the country simultaneously. There will be a GST council but it will be recommendatory body only so in my opinion if there will be dissent in some of the states then it will also be a problem in the way of GST. The FM should also declare the plans and strategy of the Central Government in such type of situation in his Budget speech.

The statement from Trade and Industry are coming that Indian Trade and Industry is very eagerly waiting for GST but I think before getting real taste of GST they would also like to know the basic decisions on certain points like rate of tax (it seems 26% or 27% or nearby is too high), fate of petroleum products and tax on interstate sale of Goods and the threshold limit. The fact is that even our law makers are not finally certain about all these facts and still trying to get a final settlement on these basic matters, there will be uncertainty and the sufferer of this uncertain environment will be India Trade, Industry and consumers and ultimately the Indian Economy and future of GST.   The Finance Minister should also refer the proposed rates of GST in Budget-2015.

The rate of tax is a very crucial aspect of the GST and the proposed rates (as per indications available) 12% (or nearby) for SGST and 14% (or nearby) for CGST is too high for trade , industry and consumers considering the fact that some of the products / commodities are taxed at 5 % without having any effect of central excise. Further the lawmakers are not certain about the fact that whether these rates are sufficient to cover the revenue neutral rate – RNR or not. Here RNR means the rate at which the Government will get at least the same revenue in the new format of taxation. The fact is that No system can calculate the RNR successfully unless the Centre and States finally agree on certain disputed aspects of GST.

So instead of declaring a proposed date of GST and then postpone it, Budget-2015 should be used for making some basic declarations and clarifications about GST.


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