GST : NEW HOPES, NEW WORRIES

[Dr. Sanjiv Agarwal]

The talks on introduction of goods and service tax (GST) in India from April 2011 have revived with the last meeting of Empowered Committee helf on 21st July 2010. It is expected that GST Bill may be introduced in Parliament session beginning today. Now that India will migrate to dual GST next year (or even after) - one central GST and other state GST, it will fall short of expected objectives.

Initially, GST was meant to simplify the structure of indirect taxes in India and move towards a simple, cenvatable unified indirect tax regime. The present discussions however, are base on dual GST which Empowered Committee and centre have agreed to irrespective of its short comings and likely hassles to taxpayer . The new GST structure is only aimed at expanding the tax base, enhancing the tax rate without any rationalization of proposed tax structure.

 According to the developments so far, it has been agreed that the exemption threshold for both goods and services under both components of GST, ie, SGST and CGST shall be kept uniform at ₹ 10 lakh. It is also being assured that law will be simplified for small dealers so that compliance is easy.

Though Government feels that a single rate structure with unification of rate for goods and services will be ideal, it may not be feasible in one go and hence dual rates. Since both centre and states will be charging tax, it has been proposed that CGST will be lower rate for goods @ 6% and standard rate at 10%. The services will be charged at 8%. For states, it is proposed to have same rates resulting in total rate for CGST and SGST in the range of 12 to 20 % in first year which may later be brought down to 16 % . Thus, we will have three rates for goods and services both for centre and states separately. This may sound simple but shall lead to more tax outgo for taxpayers. In case of service tax, while present tax rate is 10%, it will go up by 60% to 16 %, 8% for states and 8% for centre. Similarly, tax on goods will also go up to 20% . Moreover, it is still not clear whether all state taxes will be subsumed in GST or only few ones.

Information technology shall play a crucial role in successful implementation of the GST for which a group headed by none other than Chairman of Unique Identification Authority has been formed. For seamless introduction, it will have to be ensured that homogeneity in level of computerization is achieved across states.

Policy makers also need to look at curbing the Government expenditure, tax collection cost and compliance costs rather than only looking tax revenue. No assurance of all state taxes getting merged with GST and with two tax regimes having multiple tax rates, assessees would continue to suffer. Moreover, new tax regime will add up to overall taxes and costs are bound to be up.

It is not going to be simple as implementation itself is expected to take three years. GST, the goods and service tax is infact a good but slow tax.