The Confederation of Indian Industry (CII) has made a strong push for the long-delayed introduction of Goods and Services Tax (GST) to boost economic growth.
The all-encompassing GST was mooted by finance minister P Chidambaram in Budget 2007-08 and was expected to come into force by April 2010. However, the government continues to dither on implementation.
"GST is one of the most awaited reform measures on the table and industry hopes that political developments would not overshadow its progress," said Adi Godrej, chairman of the special task force on reforms of CII. Commenting on the work of the empowered committee of state finance ministers, Godrej said, "The committee has met three times in recent months. There have been positive developments on issues like compensation to states for central sales tax, exemption list and dispute settlement authority."
CII pointed out that issues such as threshold limit, compounding scheme for small traders and taxation of inter-state trade still need to be discussed by this committee. The final design of the GST model depends on the resolution of these pending concerns.
The body says GST will benefit the Indian economy at large apart from producers and consumers by imparting efficiency to the indirect tax system. "GST has the potential to add as much as 1.5-2 percentage points to the GDP growth rate," Godrej said. "Given the current slowdown of the Indian economy, such a measure is imperative. It is a ready stimulus."
It is believed that GST will increase the tax base, curb tax evasion and raise compliance for both indirect and direct taxes. CII is concerned about media reports that a high combined central GST and state GST rate is being considered. "We suggest that the combined tax rates should not exceed 18% and that exemptions to the GST coverage should be minimal," recommended Godrej.
He urged the committee to address industry concerns relating to inclusion of all goods and services in the Constitutional Amendment Bill. Real estate is not covered by the Bill although it constitutes a significant chunk of the economy as well as consumption expenditure of households on housing. States may be allowed to levy additional stamp duty over GST at a moderate rate. Similarly, alcohol too should be covered in the Bill, said CII.
Another point related to subsuming all taxes in GST, including entry tax and entertainment tax collected by local bodies and electricity duty levied by states. CII says exclusions will negate the spirit of an all-inclusive tax and add to costs as assessees will not be able to claim input tax credit. Also, including these taxes at a later stage will require a constitutional amendment.