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ROADMAP FOR GST- THE TOUGH ROAD AHEAD
 
-CA SUDHIR HALAKHANDI
(The article is wirtten by me two years back but still it is relevant- ca sudhir halakhandi) 
 
The Finance Minister Mr. P. Chidambaram while presenting the Budget- 2007 once again reiterated that GST would be introduced in India from 1st. April 2007. Let us see the relevant portion of his speech: -
 
VAT, CST and a Roadmap towards GST
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.
 
The Finance minister in his Budget – 2006 has also specifically mentioned that there is a general consensus on GST and it will be introduced in 2010. Let us see what he has said in this respect in his Budget speech in 2006: -
 
155. 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 percent to 12 percent. 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.
 
But throughout the year no purposeful talks were made with the states in this respect and one can not imagine in his widest dream that there was a large consensus between the states and the centre that the country should move towards the GST because as far as the states are concerned it will be very much difficult for them to agree to surrender their right to tax in favour of a central tax i.e. GST. Before going to see how the road ahead for GST is very tough we should not that GST will replace the following taxes: -
 
1. Central Excise
2. VAT
3. Central Sales Tax
4. Service tax.
 
VAT and central Sales Tax are two important taxes, which are being collected by the States. The Central sales act is Central Act but the revenue is colleted by the states and they retained it but the VAT is absolutely a totally state subject and major part of the state revenue is collected through VAT or State sales tax.
 
GST i.e. Goods and service tax is essentially a central tax and in that case the Central Government will impose and collect tax and states will get the share from this tax. It will be a very big bargain for the states to agree and compromise with their power to tax.
 
Congratulating the states for the success of the VAT is a different thing and because in case of VAT, states governments were already agree to introduce it because it was certain that it will increase their revenue and in that case they have only one problem and that was related to reaction of trade and Industry and the public. Now every thing is settled and as expected the revenue is also increased hence the Finance Minister has rightly congratulated the Empowered committee of state Finance Ministers in the following way: -
 
115. VAT has proved to be an unqualified success. VAT revenues of the implementing States increased by 13.8 per cent in 2005-06 and by 24.3 per cent in the first nine months of 2006-07. The next logical step is to phase out Central Sales Tax (CST). I am glad to report that the Central Government has reached an agreement with State Governments to phase out CST. Consequently, the CST rate will be reduced from 4 per cent to 3 per cent with effect from April 1, 2007. I have provided Rs.5, 495 crore for compensation for losses, if any, on account of VAT and also on account of CST.
 
 
Just after this congratulating statement the FM made another statement that the Empowered committee of the state Finance Minister is agree to work for the roadmap of GST also. This is a very important announcement and this is the correct statement of facts then there will be no hurdle in implementing the GST. But last year the Finance Minister has announced that there is a large consensus to introduce GST and now he is announcing that state finance Ministers are agree to work on GST then it appears there may be a situation that the Empowered committee of state Finance Ministers is agree to talk on GST because the statement of the Finance minister is that they are agree to Work on roadmap on GST which is a totally different thing from they are agree on GST.
 
In case of VAT the state Fiannce Ministers are on the same side of the table with the Finance Ministers and in that case the responsibility of the Finance Minister of the country was very minimum. Further VAT was an state subject and states which agreed with the VAT at earlier stage had implemented it and VAT was introduced in the country in phases which can be seen from the following Table: -
 
YEAR
NUMBER OF STATES INTRODUCED VAT
2003
1
2005
20
2005
1
2006
5
Still not decided
2
 
 
The VAT was first introduced by Haryana and still two states Tamilnadu and Uttarpradesh have not introduced it.
 
The GST can not be introduced in phases and the State Finance ministers who were on the same side of the table with the Hon. Finance Minister of the country when VAT was introduced in the country will now be on the opposite side of the table when he tried to introduce GST and in that case their struggle will be to save their right to tax the goods. Still the states are demanding the right to tax some of the specific services also and the centre has not denied this demand hence in such a situation it will be very difficult for the centre to make agree the states to compromise with their power to tax the goods.
 
As the State Finance Ministers have already started to defend their right and in this respect the statement of the Kerala Finance Minister Mr. Tomas Isac is very important –
 
 
We are not ready to surrender any power of taxation that the Constitution accords the states. The centre has been extremely niggardly in giving states freedom of taxation- Mr. Tomas Isac, Minister of Finance, State of Kerala- ET 1st. March 2007.
 
The road of GST for the centre will not be very easy and the coming years will be very tough for the Finance minister of the country on this front.
 
END
 
 
 
 
 

Published by

CA SUDHIR HALAKHANDI
(PRACTICING CHARTERED ACCOUNTANT)
Category GST   Report

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