Tax group tours Australia, Spore to study tax models
May, 22nd 2007
The Centre and states have begun the process to determine the goods and services tax (GST) model suitable for India. A delegation of the empowered group of state finance ministers is currently on a tour to Australia and Singapore to study the models prevailing in those countries. Another group will tour Brazil to study the model prevailing there. Recently, a joint working group of the Centre and states was set up to design GST structure for India and work out a mechanism to resolve the likely constitutional and administrative issues, mainly sharing of the power to levy, collect and realise tax between the Centre and states.
It is clear that GST would be a comprehensive tax on most goods and services sold or consumed in the country with input tax credit facility. In other words, each taxpayer, except the final consumer, will pay tax only on his value addition and there wont be tax on tax.
But it remains to be decided whether GST will be levied at a single rate at the federal level or at dual rates, for the Centre and state components of the taxissues inextricably linked to how the tax powers would be shared between the Centre and states.
According to a government official, the three countriesAustralia, Brazil and Singaporehave been selected for the study because the indirect tax models prevailing in these countries are different. The Australia GST is broadbased consumption tax levied at a single rate of 10%. The tax is also payable on taxable imports. The Australian GST is not meant to apply on exports. In some cases where the tax is levied on exports, the overseas buyer would be entitled to get a tax refund.
In Brazil, a national, harmonised, dual VAT system is in existence. In Singapore, GST was introduced as part of conscious shift from direct to indirect taxation. The tax is levied at a uniform, moderate rate of 3%, with few exceptions. In India, there are a host of issues of federalism that need to be addressed before the proposed GST introduction in 2010. A process to phase out the central sales tax (CST) on inter-state transactions has already begun with CST rate cut from 4% to 3% effective April 1. A move is on to give states powers to levy tax on a number of services of local nature. Deliberations are also on levy of Vat on imports.
Currently, the excise duty and service tax are integrated into the cenvat chain with seamless input tax credit. This means in the current model, the Centre will have no obligation to give credit for the tax levied by the state. As for services of inter-state nature, there is the question of identifying the tax providers end which determines which state has the jurisdiction to levy tax. It has to be decided how the input tax credit would be made available in such cases.