GST: A tax perspective

GST as you are aware is just value added tax (VAT). Sales tax and VAT for interstate transactions today were origin based that means when the tax is going it is the original state. The seller state tax rates which were getting incorporated, seller was collecting the tax for the interstate transaction part whereas in GST it is a destination state which is going to get the taxes, a major change on which we have had a lot of fights among the States.

GST and rates

Once the cascading goes the rates have to come down. Second reason for the rates to come down finally would be the widening of the tax base because service tax has a separate base, goods have today a separate base when they combine together the base becomes widened also whatever intelligence Centre has and whatever intelligence the State have when that also gets combines together the base widens.

Similarly simplify tax structure then possible reduction in prices finally this is what Mr. Kelkar has said and Mr. Satya Poddar (Tax Partner, Ernst & young) has also written – 1.4% of gross domestic product (GDP) growth.

What does 1.4% amount to?

It amounts to more than Rs 50 lakh crore of growth in the economy with this coming in. Central taxes which are getting subsumed excise mainly central excise and its related taxes; service tax, additional customs duty, the CVD is part of this and all its surcharges and cesses these are the central taxes which are coming in. What are the State taxes which are getting into this – VAT, entertainment tax, luxury tax, taxes on lottery, betting and gambling – State cesses and surcharges as along as they relate to goods and services; entry tax not in lieu of octroi; now this question of octroi – when we discussed this octroi issue; this octroi issue does not remain in any other state. So they said that if we include octroi in this the Revenue Netural Rate (RNR) goes up tremendously. So Maharashtra was told that it is your problem, you have to solve it and it will not be part of GST because originally we had envisage that it will be part of GST but then it is just left in one State and on Octroi, I believe some work is going on separately which I am not dealing with that – what is to be done about Octroi.

Will Central Sales Tax (CST) be abolished?

CST will be abolished on the goods and services which are part of GST, whether the CST will continue on the balance is an issue. Then the taxes which are not getting subsumed under GST, customs duty, excise on tobacco, petroleum products this is very-very important. Petroleum is not part of GST. Excise duty on liquor, octroi, sales tax on petroleum products, natural gas is still undecided, stamp duty and taxes and duty on electricity. Purchase tax we have not been able to get consensus. We all wanted purchase tax to be part of GST. States like Haryana, Punjab have been opposing it. They are saying that their major contribution is coming from purchase tax. So we are trying to find a solution to that.

Some salient features of this GST model. A dual GST structure, we are aware and economist have also been telling us that ideally it should be one agency which should be dealing with it but we have a federal structure and there was a question of autonomy, there were other issues so therefore finally this double GST structure was adopted. Central Goods and the Services Tax (CGST) is the central GST which will be administered by centre, State Goods and Services Tax (SGST) with states.

Written by ntnirale on February 2nd, 2010 with comments disabled.
Read more articles on GST.

Related articles

Comments disabled

Comments on this article have been disabled.