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Indirect tax reforms to rev up revenues, GDP
October, 07th 2011

In its efforts to build a broad consensus on the proposed goods and services tax (GST), the Associated Chambers of Commerce and Industry of India (Assocham) has said the indirect tax reforms would lead to buoyancy in government revenues, increase the countrys GDP and reduce inflationary pressures.

The GST would lead to reduction in prices of most manufactured goods by about 10 per cent, the 1920-established industry chamber said here today. Once the GST replaces all multiple taxes, it is going to be the biggest tax reforms in independent Indias history, it said in a recent study titled GST Beyond Growth.
The tax-GDP ratio too may go up by 1.5 to 2 percentage points with the net revenue jumping by Rs 1.5 lakh crore a year, said the study.

The GST will create a single Indian common market and there will be no distinction between goods and services with seamless input tax credit allowed throughout the supply chain.

The study assumes importance since Finance Minister Pranab Mukherjee had sought the help of industry chambers to build a consensus on the GST. The GST has already missed two earlier deadlines of 2010-11, 2011-12 and is again unlikely to be enforced from the next financial year starting April 1, 2012. Reason: differences between the Centre and states.

While a Constitutional amendment is being considered by a parliamentary standing committee, the next financial year is the time set for implementing the GST, which is a comprehensive value-added tax on goods and services levied at each stage of the supply chain. The GST, which is an indirect tax to imposed by all states and the central government, is meant to replace existing levies such the state VAT besides the Centre-imposed excise duty as well as the service tax.

Initially, petroleum products and alcohol will be kept out of the purview of the GST. More professions in the services sector will be brought under the tax net. Under the proposed GST rate structure, the first year of tax will see all services attracting a standard rate of 16 per cent (its each half proposed to be imposed by the Centre and the respective state), with a negative list being considered for exemption of few.

There could be a lower rate of 10 to 12 per cent for specified goods like basic food items and a very low rate for precious metals and stones.

Other goods will be taxed at a standard rate of 20 per cent. All rates are ultimately proposed to converge into 16 per cent in three years, as per a proposal by the finance ministry.

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