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Goods and service tax (GST) - more positives
August, 17th 2010

The much debated issue of goods and service tax (GST) has seen political parties taking two different sides. I still feel there are more positives to move to single rate GST regime as proposed by the Finance Minister Pranab Mukherjee.

The effective implementation of GST will have a positive impact on profitability which can change the very manner in which indirect taxes are levied and distributed amongst states. It would also remove tax distortions and enable creation of an efficient consumption tax system which is currently the need of the hour.

While experts opine that GST 'is the most important aspect of the economic and fiscal reform,' they also feel that certain concerns in the path to implementation of GST need to be answered.

A recent study has also noted that: 'GST and the Direct Tax Code (DTC) were the two major economic and fiscal reforms that were to be unfolded in the coming months. Both would have significant impact on business. These path-breaking reforms should make India more competitive, especially its manufacturing sector.'

With several states, especially non-Congress state governments expressing reservations mainly on the impact of GST on the state's revenue collection, I feel there is a need to balance fiscal autonomy of states with harmonization of the proposed GST module.

Although GST would have an overall positive impact on the profitability and it can be an opportunity to consolidate one's business operation, there are still several issues that need to be answered before its implementation. For instance, petroleum products, alcohol and electricity have been excluded from the GST list which means a levy of tax on these goods without the benefit of credit on inputs.

Moreover, if we are to make exports competitive in the global markets, there should be no tax elements in the prices of goods exported. I'm however not sure how we will achieve this if octroi and tax on electricity and petroleum products are not included in GST. I think these ambiguities need to be removed.

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