JSA's Partner, Ashok Dhingra and Senior Consultant, Sonia Gupta write about GST and its journey till date. They believe that it is imperative that it is implemented at the earliest.
The story of economic reforms was started in 1991 by Dr. Manmohan Singh, the then Finance Minister and now Prime Minister, will culminate with the introduction of Goods and Services Tax (GST) and a new Direct Tax Code (DTC). In the last two decades, despite a change in the ruling combine at the Federal level, reforms never derailed and on the contrary, continued on full steam.
In the interregnum, amongst other tax reforms, Value Added Tax (VAT) was introduced to replace sales tax at the State level. At the time of introduction of VAT, several issues were raised by many States, inter alia, sharing of revenue, compensation of revenue loss, etc. However, after Haryana introduced VAT in 2003, all states over a period of time, hopped on to the VAT bandwagon, while some of the issues were still being resolved.
Further, though VAT was an improvement on sales tax yet there were certain elements of taxes which were not passed, adding to the cost of transaction. With a view to reduce the cost of transaction and move to a modern and efficient tax system, GST was proposed to be introduced from April 1, 2010. Accordingly the Empowered Committee of the State Finance Ministers (Empowered Committee) was given the task of bringing consensus on key issues and address concern of all the States for smooth introduction of GST in the country. The Empowered Committee came out with first discussion paper on November 10, 2009. Subsequently task force of the 13th Finance Commission and the Institute of Chartered Accountants of India also gave their recommendations on key issues on introduction of GST in India.
Based on recommendations of the above stakeholders, the following structure of GST is emerging; (a) CGST: Federal Tax, to subsume excise duty and service tax; (b) SGST: State Tax, to subsume VAT, entry tax, entertainment tax and other State levies; and (c) IGST: administered by the Federal Government to levy GST on inter-state sales transaction of the goods.
However, despite a lot of ground having been covered, consensus is yet to be achieved between the States and the Federal Government on several issues, including the final structure of GST and compensation for loss of revenue to the States. In addition, consequential amendments to the Constitution of India are also to be carried out.
In this backdrop, as expected, the Finance Minister announced a delay in the introduction of GST while presenting the budget. Even today, the Hon’ble Finance Minister is not categorical about exact date but stated, “It will be my earnest endeavor to introduce GST along with the DTC in April, 2011.”
At the cost of repetition, we would like to emphasize the fact that GST is an efficient modern tax system which would take away inefficiency of VAT, ensure better compliance, reduction in transactional cost and bring buoyancy in revenue. Introduction of GST will result in automatic compliance and also encourage documentation, as unless an invoice for subsequent sale is issued by a dealer GST paid on purchase will become a sunk cost in the hands of such dealers. Therefore, dealer will be forced to issue invoice and route transactions through book of accounts. This will also help the Federal Government not only combating black money but ripple effect will also bring buoyancy in other taxes, for example, income tax.
Before parting with the issue we would like to reproduce the comment made by the Former Finance Minister of India, Yashwant Sinha in the budget preview, on a television channel yesterday that “BJP is not against GST but wants consensus to be built and concerns of the States are addressed before introduction of GST”.
Given the multifold benefits of GST it is imperative that political parties, unite to ensure the introduction of GST by April 2011. The next 13 months are going to define how political leadership of all the parties come to the aid of nation and economy and ensure introduction of GST without further delay.
Ashok Dhingra is the Partner and Chair of J.Sagar Associates' taxation practice, and Sonia Gupta is a Senior Consultant.