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THERE IS NO FUTURE OF GST IN INDIA IN NEAR FUTURE

CA SUDHIR HALAKHANDI 
on 26 February 2010

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SUDHIR HALAKHANDI-BUDGET -2010

 

 

- THERE IS NO FUTURE OF GST IN INDIA IN NEAR FUTURE-

 

-CA SUDHIR HALAKHANDI

 

 

 

The Finance Minister Mr. Pranab Mukharjee has presented the Budget -2010 on 26th Feb 2010 and on taxation front all the eyes are on any important declaration with respect to the Goods and service tax and DTC- the direct code bill. First of all let us see what was the statement of the Finance Minister in Budget-2010 with respect to Goods and Service Tax:-

 

THE DISCUSSION ON DTC NEARING COMPLETION

25. I am happy to inform the Honorable Members that the process for building a simple tax system with minimum exemptions and low rates designed to promote voluntary compliance, is now nearing completion. On the Direct Tax Code the wide-ranging discussions with stakeholders have been concluded.  I am confident that the Government will be in a position to implement the Direct Tax Code from April 1, 2011.

WE ARE TRYING FOR CONSENSUS ON GST

26. On Goods and Services Tax, we have been focusing on generating a wide consensus on its design. In November, 2009 the Empowered Committee of the State Finance Ministers placed the first discussion paper on GST in the public domain. The Thirteenth Finance Commission has also made a number of significant recommendations relating to GST, which will contribute to the ongoing discussions. We are actively engaged with the Empowered Committee to finalise the structure of GST as well as the modalities of its expeditious implementation. It will be my earnest endeavour to introduce GST along with the DTC in April, 2011.

IT TECHNICAL ADVISORY GROUP

104. An effective tax administration and financial governance system calls for creation of IT projects which are reliable, secure and efficient. IT projects like Tax Information Network, New Pension Scheme, National Treasury Management Agency, Expenditure Information Network, Goods and Service Tax, are in different stages of roll out. To look into various technological and systemic issues, I propose to set up a Technology Advisory Group for Unique Projects under the Chairmanship of Shri Nandan Nilekani.

ENOUGH HAS BEEN SAID IN PREVIOUS PARA

118. I had stated last year that tax reform is a process and not an event.  The process I had outlined in the area of direct taxes was to release a draft Direct Taxes Code along with a Discussion Paper.   In the area of indirect taxes, the reform initiative was the introduction of a Goods and Services Tax. I have presented the developments in both reform initiatives in Part 'A' of my Speech.

SERVICE TAX RATE AT 10% TO MAKE A WAY FOR GST

179.     To bridge this gap, I had the option to raise the rate of service tax to 12 per cent as it was before I introduced the third stimulus package.  I am not resorting to this option to maintain the growth momentum and also to bring about a convergence in the rates of tax on goods and services.  I, therefore, propose to retain the rate of tax on services at 10 per cent to pave the way forward for GST.

 

 

The law makers have taken sufficient time for discussion on Goods and service tax- GST and Direct tax code- The DTC but what is said in the Budget speech of the Hon. Finance Minister does not show any concrete statement on any of the controversial matter on the subject.

 

The discussion on the GST is going on since 1996 when the then finance Minister has declared that there is a consensus for National level Goods and service Tax. Let us have a look at the statement made by the erstwhile finance Minister in his budget speech -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.

 

See the interesting analysis of the two budget speeches and one will be surprised to know that in 2006 there was a consensus on “National GST” but in 2010 there are differences even on Dual GST?

 

The matters of difference on the GST can be listed as under:-

 

1. National or dual GST.

2. The tax rate dual or single.

3. The exemption list.

4. The threshold for Central Goods and service tax.

5. The matter of purchase tax and tax on alcohol products.

 

The first four matters are the fundamentals of Goods and service tax and see here that since 2006 the centre and the states have agreed only on the matter of “Dual GST” and all the other matters though highlighted in the current year but were pending since inception of the Goods and service Tax.

 

The views expressed in the discussion paper issued by the empowered committee are considered to be the views of the states and the views taken in the report of 13th Finance Commission are the views of the centre hence it was accepted that the Finance Minister will declare concrete opinion on these differences and enumerate the terms and conditions on which he will introduce Goods and service tax.

 

All the matters are important and in the Budget -2010 all these have been left open-ended with making only ceremonial statements. See the statement of Hon. Finance Minister in the Budget-2009 regarding Goods and service tax :-

 

82. In the course of preparation of this budget, I have had the opportunity to interact with large number of stakeholders and receive valuable inputs.  Most suggestions were for structural changes in the tax system.  Tax reform, like all reforms, is a process and not an event.  Therefore, I propose to pursue structural changes in direct taxes by releasing the new Direct Taxes Code within the next 45 days and in indirect taxes by accelerating the process for the smooth introduction of the Goods and Services Tax (GST) with effect from 1st April, 2010.

 

See here that there are some facts and these are:-

 

1. The National GST is not possible in our federal system.

2. In case of Dual GST there will be lot of complications for trade and Industry which are not considered by the lawmakers both the central and state level but the basic fact is that both centre and states have differences on basics of dual GST.

3. Since 2006 the Finance Ministers are only making only ceremonial statements because basically they are well aware of the fact that simplification will only be the result of national GST which is not possible and in case of dual GST the states will not agree on centers format.

4. The best chance for the law makers was udget-2010 in which they should have declared that GST will be implemented in India on some basics only.

 

Since even after so much time taken for discussion they are not sure whether they will be able to break the dead lock then it is sure that GST even in it’s dual format has not future in India. Why we are compelled to discuss it theoretically every year – form year to year.

 

Why not FM accepts this fact that GST has no future in India?? The reason is very simple – This declaration of fact will harm our Global image!!!

 

BY CA SUDHIR HALAKHANDI

 

 

 

 

 

 

 

 

 

 




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