GST set to replace state
& central taxes by 2010
The
proposed unified goods & service tax (GST) regime could spell an end to
various kinds of exemptions enjoyed by the corporate sector. These include
area-based exemptions and sectoral tax breaks.
Finance
minister P Chidambaram had proposed the introduction of GST from
committee of state finance ministers to prepare a road map. The empowered
committee is now giving final touches to its recommendations on the modalities
of GST, which looks all set to be announced in Budget 2008-09. The Planning
Commission has already endorsed the finance ministry’s view on launching GST
from 2010 in the approach paper to the 11th Plan.
The
empowered committee has accepted the report on GST submitted by the joint
working group and has favoured adoption of dual GST—central GST and state GST.
There would be more than one slab of tax for goods, but a single rate for
services. At the central level, the rates will be decided by the Union
government.
The
attempt this time, both, by the Centre and states is to keep the rates uniform,
an objective which remained unfulfilled to quite an extent in the value-added
tax regime. Set-off would also be available against tax paid on inputs at both,
the central and state levels.
The
GST at the state level will subsume as many taxes on goods and services as
possible and feasible. Implementation of GST would also require a
constitutional amendment to allow states to tax services. The panel has
suggested that subsuming levies like excise duty and service tax into a single
federal GST. States would need to merge value-added tax and local levies into a
state-level GST.
The
report of the joint working group has called for doing away with area or
industry-based exemptions. It has suggested that, if at all some incentive is
to be given, it should be in the form of direct subsidy. This will help in
keeping the GST rate low by expanding the tax base.
Moreover,
the emphasis is on keeping the deviations minium and having a common exemption
list. Both, the Centre and states would fix a uniform turnover limit, below
which no GST would be levied. At present, there are vast differences. The
excise exemption threshold is Rs 1.5 crore, for services tax Rs 8 lakh and for
VAT ranges from Rs 2 lakh to Rs 10 lakh. Taxpayers will be given a PAN-based
taxpayer identification number, with two extra digits to distinguish between
central and state GST.
In
case of taxation of services, the joint working group has recommended a
destination-based taxation, implying that tax would be collected in the the
state where the service is consumed.
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