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GST to help remove cascading structures
November, 30th 2007
Pleas for tax incentives could be reduced to a great extent: Shome



Dr Parthasarathi Shome, Advisor to Union Finance Minister (File photo).

The proposed dual Goods and Service tax (GST) system would be designed in such a manner that the Central GST chain and the State GST chain would be independent of each other, a top Finance Ministry official has said.

This would imply that India Inc would not be able to use the input tax credit available under the Central GST chain in the State level GST chain. The Central GST chain is likely to integrate the existing excise duty and service taxes levied at the central level.

The State level GST chain is likely to integrate the current State-level VAT, other local levies and services tax on certain specific services on which States may get the powers to levy service tax.

There will be full input tax credit in the Central GST chain and also in the State level chain, But there would be no usability of Central GST into the State-level GST chain, Dr Parthasarathi Shome, Advisor to the Union Finance Minister, said at a PHDCCI meeting on indirect tax reforms.

Structure impact

Dr Shome said that the main goal of introducing GST was to remove the cascading effect in the respective chains (Central and State level GST chains). He highlighted that the pleas for tax incentives could be reduced to a great extent if the level of cascading structures were minimised.

Currently, under the goods chain, the Centre has the powers of taxation up to the manufacturing stage. After the manufacturing stage and up to the final point of sale, the States impose value added tax and other local levies. The State-level VAT is imposed on price base that include the excise duty, leading to some cascading of taxes.

Tax base

Dr Shome also made it clear that industry cannot look forward for low GST rate (say 14 per cent) until the issue of broadening of the tax base is addressed. There are about 60 lakh registered traders at the State level and 1 lakh registered assesses at the Central level.

Mr R. Sekar, Joint Secretary in the Finance Ministry, expressed confidence that GST would be rolled out by April 1, 2010, which is the proposed introduction date announced for this tax.

 
 
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