Advisor to Union Finance Minister Parthasarathi Shome, on Thursday, maintained that there was no point of having a Goods and Services Tax (GST) unless the distortions in indirect taxation for industry and commerce were reduced.

At an interaction with industry on the GST, organised by the Associated Chambers of Commerce and Industry of India (Assocham) here, Dr. Shome argued that unless the process for seamless production and distribution was improved, there was no need to move from the current value added tax (VAT) regime prevailing in States to the proposed unified GST regime.

The bottom-line

“What we need to see at the bottom-line is whether the new tax is going to become seamless for production decision-making, investment decision-making, getting input tax credit in the right manner, minimising wrong accumulation of input tax credit, facilitating inter-State trade and getting refunds from one State to the other,” Dr. Shome said while pointing out that if there was any improvement in each of these, then it would be worthwhile to move over to the GST regime from VAT.

“If there is no improvement, then in the production process we are not going to get a great advantage…The whole point is that as you smoothen out these kind of distortions, the decision-making in productive sector becomes better and, as a result, our production increases, the GDP (gross domestic product) increases and our tax revenue increases,” Dr. Shome said.

The onus, he said, would be on the productive sector and the private sector, in particular, to analyse the impact the GST regime would have in this kind of day-to-day decision-making issues and then making an investment despite having an indirect tax. That was the real directional movement as to why the GST regime was required and that was a challenge, he said.

“Possibilities on the GST front have opened up now a little bit and depending upon what is happening next year through all the technical requirements, I think GST has a good probability in the tax horizon today,” Dr Shome said.

More dialogues

However, Dr. Shome could not fix a timeline for introduction of GST as more dialogues are expected between the Centre and States in the coming months on some issues. “It can not be said when it [GST regime] will be introduced, but certainly now there is more dialogue that is expected and will occur, I am sure,” he said on the sidelines of the event.

Dr. Shome pointed out that Finance Minister P. Chidambaram had held two meetings with the members of the Empowered Committee of State Finance Ministers to arrive at a consensus. It may also be recalled that after the two-day meeting of State finance ministers in Bhubaneshwar in January this year, Empowered Committee Chairman and Bihar Deputy Chief Minister Sushil Modi had gone on record saying that 80 per cent of contentious issues pertaining to GST had been resolved.

As for the DTC (Direct Taxes Code), Dr. Shome said the proposed new legislation was a “fundamental churning of the income tax law” and so it had to be seen whether it was able to come up with “a real informed income tax or not”. The government, he said, was in the process of analysing the comments on the DTC Bill given by the Parliamentary Standing Committee on Finance, chaired by Yashwant Sinha. “Once they have a look at it, as has been assured, the Finance Minister will place it back in Parliament in the Budget session which will again resume on April 22 and close on May 22.

The real pillars

Alongside, as part of structural reforms, Dr. Shome said there was some exercise going on reassessment of large taxpayer units to see what more improvements could be done. “We cannot just stick with GST and DTC but all kinds of structural administrative reforms at the field level are important because they are the real pillars supporting the overall major fundamental changes like GST and DTC,” he said.