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3-tier GST to increase tax burden on common man: Experts
July, 22nd 2010

The proposed three-tier Goods and Services Tax (GST) structure unveiled by Finance Minister Pranab Mukherjee on Wednesday will increase the tax burden on the common man, say experts. "There could be some reduction in the cascading effect, but overall, tax burden would go up for common man," Ernst & Young Tax Partner Bipin Sapra said.

Finance Minister Pranab Mukherjee on Wednesday proposed a structure for the GST -- which will simplify the indirect tax regime -- under which goods will attract 20 per cent levy, services 16 per cent and essential items a concessional 12 per cent.

"If the manufacturers pass on their benefits to consumers, then only their tax burden would reduce," opined BMR Advisors Partner Indirect Tax Practice Rajeev Dimri.

The chambers, however, are divided over the impact of GST on industry. While the Confederation of Indian Industry (CII) and Assocham have welcomed the announcement, FICCI expressed its reservations.

"This structure will not serve the purpose (of GST)... the rates are on the very, very high side," FICCI said.

CII Director General Chandrajit Banerjee, however, said, "There is a consensus between the Centre and the Empowered Committee on the design of GST. This would pave way for introduction of GST from April, 2011, which industry is very keen for and we see this as a very positive move."

The proposal, according to Assocham, "is most equitable distribution of GST, which industry will have to accept and adjust after implementation of the new indirect tax regime."

The proposal, opined Sachin Menon, Head Indirect Tax, KPMG, "will not result in much gain for manufacturing. Ideally, the service and goods tax rate should have been the same."

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