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FinMin conducts study on tax exemptions for goods and services
September, 11th 2014

The finance ministry has started a comprehensive study of tax exemptions granted to various goods and services under indirect tax regime in order to streamline the tax structure under Goods and Services Tax (GST) for a pilot run of GST in 2015.

According to official sources, the government has decided to roll out GST as pilot run in 2015 starting with central GST. They explained the government plans to have two types of GST – central GST and state GST.

They further explained, there are many cases where the state imposes value added tax whereas the centre maintains such goods or services under the exemption category. In such variation, firstly the consumer gets the exemption on central sales tax and then input credit on the value added tax paid on the item.

Since manufacturers pay both central and State level taxes (excise duty and VAT/central sales tax or CST), their ability to utilise input taxes is the highest.

However, in the case of traders and services, which have only State and Central level taxes, respectively, their ability to claim set off of input taxes is limited, since there is no inter-sectoral set off of these taxes.

Officials explained indirect taxes ought to be a pass-through cost for any participant in the entire supply chain. Since the current system does not permit seamless set off of input taxes, these costs are finding their way to the consumers' pocket as part of 'price' and not as 'tax'.

The aim is to have a harmonized tax on both goods and services, which permits set off of tax paid on purchase of inputs and input services seamlessly.

As per officials, some select category of goods and services out of the 54 entries has been selected to try out a pilot run. If possible the pilot run may not require constitutional amendment effecting transfer of rights from state to centre. They said, a pilot run will bring out the teething problems in the whole process.

GST or the Goods and Services Tax are an indirect tax that brings together most of the taxes that are imposed on all goods and services (except a few) under a single banner.

This is in contrast to the current system, where taxes are levied separately on goods and services. The GST, however, is a comprehensive form of tax based on a uniform rate of tax for both goods and services. However, the GST is payable only at the final point of consumption.

However states have opposed to the two tier structure of – central GST and state GST over and above constitutional amendment to effect transfer of taxation rights from state to centre under an uniform structure.

Various states have also started working on the different provisions, point of sale etc for the pilot run and submit its report to the centre.

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