Published Editorial

GST, still a mirage?

  • Share

The Hindu

by

Shankar Bala

Senior Advisor
Tax and Regulatory Services
Ernst & Young

The Goods and Services Tax (GST) — a comprehensive national-level tax on manufacture, sale and consumption of goods and services and touted as one of the biggest taxation reforms — has remained a mirage, though conceived way back in 2005. There was palpable earnestness when April 1, 2010, was set as the kick-off date in Budget 2006-07.

Despite consensus on the watered-down version of GST — dual GST comprising Central and State GST upholding the spirit of federalism — the reform has remained elusive primarily due to lack of unanimity on autonomy, compensation for the loss of revenues on abolition of the CST (Central sales tax) and the GST design.

Blissfully, the last few months have witnessed renewed earnestness with the Empowered Committee of State Finance Ministers deciding to prepare a model GST legislation, and setting up committees to address issues relating to integrated GST, VAT on imports, dual control threshold and exemptions, revenue neutral rate and place of supply rules. Resolution of the issue relating to compensation shows the resolve of the Centre to move ahead with the reform. Apropos the visit of the Empowered Committee to Canada and Japan a mid-way has also been identified in the area of the GST design with option for the State(s) to be out of GST — a la State-level VAT experience where few States, which opted out of VAT, were quick to join the bandwagon within a year compelled by revenue buoyancy.

In the light of the fragile global economic conditions (with growth pegged at 3.3 per cent for 2012 as per the IMF World Economic Outlook of October, 2012), India story being no better with the Central Statistics Office (CSO) projecting a GDP growth of 5 per cent for 2012-13, the overall growth target for the XII Plan set at 8 per cent and the consequent depressed sentiments and the need to keep a check on inflation, reasonable expectation is that the rates of excise duty, customs duty and service tax will remain untouched.

Any increase in the rates of duty/tax in the guise of alignment to GST — which can well be aligned at the time of implementation — will fuel inflation, and adversely impact consumer sentiments. However, keeping in view the prime objective of GST — to avoid a cascading effect of taxes — issues relating to artificial restrictions on input/input services credits need to be addressed to bring in consistency with the GST.

There is a genuine expectation that the Finance Minister — at whose behest the GST took roots — will unfold a clear roadmap for the revamped version of GST. Even if the GST at the start is not the most ideal version, which can be achieved through course correction, it shall suffice if the GST takes off. This will facilitate investments and consequently growth at a time when sentiments are depressed and growth projections lowered by day and by night. Importantly, it will send the signal that economic considerations do not get whittled down by other considerations.