The best comment of the Department of Revenue on the First Discussion Paper (FDP) on the proposed Goods and Services Tax (GST) is the one to have a single tax rate. The second best suggestion is to restrict exemptions to 99 items that are already exempted under the value added tax (VAT). There are other sensible suggestions also that the Empowered Committee (EC) of state finance ministers must consider in depth.
It makes eminent sense to have a single rate of State GST. The department argues that a two-rate structure for goods a lower rate for essential goods and a standard rate for others, as proposed by EC will pose several problems such as a higher rate on raw materials and lower on finished goods, input credit accumulation, higher general rate than under a single-rate regime, demand for two-rate structure in services, continuing distinction between goods and services, etc.
It also says that the single rate must be put up in public domain much before initiation of legal action and that even petroleum products must not be left out of the GST regime.
The EC had proposed discussions on what goods may be exempted and giving discretion to states to exempt more items. The department says there should be no scope, with individual states, for expansion of the list of 99 items already exempted under the VAT regime even for goods of local importance.
It also says that efforts will be made by the Centre to substantially reduce the number of items presently exempted under the Central Value Added Tax (Cenvat) regime and that there must be a common list of exemptions for Central GST and state GST.
The departments suggestion that electricity duty, octroi, purchase tax and taxes levied by local bodies should also be subsumed under GST also makes sense.
The department is in general agreement with the EC that exports must be zero rated and imports taxed. The suggestions such as abolishing area-based exemptions, building suitable information technology infrastructure, uniform mechanisms for collection and settlement of disputes, etc. have also met with the departments approval.
The present VAT Acts of different states prescribe different threshold limits below which VAT is not applicable. The EC had suggested a uniform state GST threshold across states and recommended a limit of Rs 10 lakh both for goods and services for all the states. The revenue department says that the annual turnover threshold could be Rs 10 lakh or more but the same should not apply to dealers and service providers who undertake inter-state supplies.
The department has also suggested registration by a single agency, avoidance of security deposit or physical verification of premises, simplified return format, longer frequency for return filing, electronic return filing through certified service centres, etc, audit in 1-2 per cent cases based on risk parameters and lenient penal provisions for small dealers. It has agreed with EC on the limit of Rs 50 lakh and a rate of 0.5 per cent under the composition scheme.
The comments of the revenue department take the deliberations on proposed GST to the next level, with areas of differences significantly narrowed. The trade bodies and the government now appreciate that it is not feasible to implement GST from April 1. It is better to implement it with effect from April 1, 2011, rather than do it mid-year.