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Common market key to introduction of GST: Shome
January, 17th 2007

DR PARTHASARATHI SHOME, Advisor to the Union Finance Minister, flanked by Mr Anil K. Agarwal, President, Assocham, and Mr Nihal Kothari, Chairman, Assocham Tax Reforms & International Tax Committee, releasing a study on `GST: A road map', in the Capital on Tuesday. Kamal Narang

The Government and industry do not share the same viewpoint on the roadmap for central sales tax (CST) removal even as they agree over the need to create a common market before the goods and services tax (GST) is introduced.

For creation of a common market, impediments to free trade such as the `origin-based' non-VATtable CST have to be abolished. A GST roadmap prepared by Assocham has recommended that tax rate under CST must be reduced to 2 per cent by April 2007 as a first step towards GST introduction and thereafter be eliminated by April 2008.

Assocham's GST roadmap `GST: Imperative for economic growth' was released by Dr Parthasarathi Shome, Advisor to the Union Finance Minister, here on Tuesday.

On the other hand, the Centre and the States are working towards an arrangement whereby the CST rate cut would begin from April 1 from 4 to 3 per cent.

While industry is keen that CST be removed at the earliest, the Union Government wants to take a cautious step given the revenue implications of such a measure.

The Centre has already announced intent to introduce GST by 2010. Industry, however, is keen that GST be introduced earlier than 2010.

The Assocham study, which has mooted three alternative structures for proposed GST, has highlighted that any talk about introduction of national level GST was meaningless without creating a common market by abolition of CST.

Abolition of CST does not mean removal of levy on inter-State sales. The abolition of CST is only to facilitate introduction of full-fledged State VAT by changing the point of levy from origin State to destination State so that input-tax credit against inter-State purchases can be granted,

"Developing a common market is the crux of the issue here. GST should enable free trade within the country. Impediments to free trade within the country have to be removed, especially when we are signing a number of free trade agreements abroad. This is an important challenge before us," Dr Shome said.

Dr Shome identified six major challenges that policy makers need to overcome for introduction of GST.

These include issues relating to Constitutional provisions, tax assignments vis--vis revenue sharing, the overall level of rates, the type of rate structures, development of a common market and successful operation of TINXSYS (Tax information exchange system).

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