GST

THE Union Cabinet’s nod to the amended goods and services tax (GST) Bill is just a baby step toward an ambitious tax reform. The Bill will become a law only if there is a consensus among political parties and states since it requires Constitution amendment. The BJP-ruled states as also Haryana and Andhra Pradesh are cool to it, fearing loss of revenue and autonomy to levy taxes. The Prime Minister recently linked the BJP opposition to the GST to the arrest of Gujarat’s former Home Minister Amit Shah.
The GST, set for an April 2012 rollout, will simplify India’s indirect taxes. It will replace multiple taxes like the Central Sales Tax, the value added tax (VAT) and local levies and surcharges imposed by the Centre and states at various stages of production, movement and retail of goods. Under the new regime only one tax – GST — will be levied at the retail level. This will curb needless litigation, delays and tax evasion. Production costs and tax burden will fall, resulting in lower prices. Manufacturing will become more competitive. The government can help firms it wants to by issuing tax refunds, which makes the system more transparent and less corrupt. Some 120 countries have adopted the GST model.
But states are not for it yet. They want to keep the power to tax oil, alcohol and tobacco. Punjab does not want to give up its tax on agricultural produce. If state levies are permitted, this would defeat the chief goal of the GST, which is to introduce uniform tax rates countrywide and treat India as a single market. With the GST, petrol, diesel and liquor will not have varying prices in states. There are also differences over the GST council, which is meant to settle disputes, and the Union Finance Minister having the veto power over the state GST. But these are not insurmountable problems, especially when the Centre is ready to absorb the states’ revenue loss, if any.