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Unfinished tax agendas to delay goods and services tax launch by April
April, 11th 2009

Its not going to be easy for the next government to usher in a regime of goods and services tax (GST) by April 1, 2010. Though technical level preparations are on, sources close to the empowered committee of state Finance Ministers have told CNBC TV-18 that most legislative, structural and implementation issues are still to be sorted out.

Unfinished tax agenda

The Empowered Committee of State Finance Ministers entrusted with the job of devising a roadmap for introduction of GST in April 2010 is racing against time. With a new government likely to be in place only in June this year, effectively the committee will be left with just 9 months to complete the work towards bringing in a GST. Looking at the unfinished agenda, its clear that its going to be easier said than done.

GST: The Challenges

- Structure still to be decided

- Emerging view: Dual rate structure at centre & states

- Traders want unified rate

- No consensus yet

- Aligning to GST rates take consuming

- No clarity on input tax credit

- Empowered Committee under pressure to subsume all local levies

- Deadline for phasing CST out: April 1, 2010

The Committee has yet to firm up the basic rate structure of GST though there is an emerging dominant view in the committee that a dual rate structure should be followed with two different rate structures for the states and the centre. But traders and industry are still lobbying for a single unified GST rate across the country for both goods and services. There are still issues with the rate of GST. Arriving at a consensus rate will be politically sensitive as most states are likely to oppose a low rate because of fear of revenue losses.

Even if a consensus rate is agreed upon, time needs to be given to align all indirect tax rates to the GST rate. Also there is no clarity yet as to how input tax credit will be given in a pure GST system. If this issue is not sorted out, it could actually mean consumers paying more for goods and services. Besides, different states have different local levies an example being the purchase tax levied in Punjab. The Empowered Committee is under great pressure to subsume all local levies at the state level GST. The Central Sales Tax (CST) has also to be phased out by April 1,2010

Tax sharing roadblocks

There are strong disagreements between states and centre on how the proceeds from GST should be shared. States have already told the Finance Ministry that they would require a higher percentage of central share of taxes than the current 30.5% currently. This matter has been referred to the Vijay Kelkar headed Thirteenth Finance Commission. But the biggest problem seems to be the legislative issue.

Legislative hurdles for GST

- Draft GST bill needs to be readied soon

- Constitutional amendment needed to empower states to tax services

- Government stability & political will needed

First and foremost the draft GST Bill has to be readied soon and cleared by Parliament. Secondly, to empower states to tax services, a constitutional amendment is necessary. And all this will depend on how soon a stable government is back in power at the centre

India Inc fears that the implementation to GST may well be as chaotic and opaque as the partial transition to VAT. Already traders and corporate India have said made submissions to the Finance Ministry and the Empowered Committee to come out with a white paper on GST and ready the bill by June so that they get atleast 6 months to ready their internal systems for the big tax switch.

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