In its press release, CII stated that issues such as threshold limit, compounding scheme for small traders, taxation of inter-state trade and others still need to be discussed by the Empowered Committee of State Finance Ministers, which was created to address industry concerns. The final design of the GST model would depend on resolution of these pending areas.
‘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, immediate Past President and Chairman, Special Task Force on Reforms of CII. Commenting on the work of the Empowered Committee, Godrej said, “The Empowered 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.”
According to CII, GST would bring many key benefits to the Indian economy as well as producers and consumers by imparting efficiency to the indirect tax system. “GST has the potential to add as much as 1.5 – 2.0 percentage points to GDP growth rate,” stressed Adi Godrej. “Given the current slowdown of the Indian economy, such a measure is an imperative and is a ready stimulus.”
GST would also help in increasing tax base, curbing evasion and raising compliance for both indirect and direct taxes. Better compliance could raise additional tax revenues of almost 20 percent, pointed out the CII release.
By instituting consumption based taxation, GST would make India a single market and ensure free flow of goods. This would create more efficient supply chains and reduce transaction costs, lowering final prices for buyers. A more competitive manufacturing sector could help add more jobs and encourage exports as well, pointed out the CII press release.
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 percent and that exemptions to the GST coverage should be minimal,” stated Godrej.
CII urged the Empowered 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 issue relates to subsuming all taxes in GST, including entry tax and entertainment tax collected by local bodies and electricity duty levied by states. Such exclusions would 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 would require an additional Constitutional Amendment. “The main purpose of the Constitutional Amendment Bill is to empower the Central Government to tax goods beyond the manufacturing stage and states to levy tax on services. Any exclusion can be covered outside the Bill, if necessary,” said Godrej.
The GST was initiated by the Finance Minister P Chidambaram in the Budget of 2007-08, and was expected to come in force by April 2010. The 115th Constitutional Amendment Bill has been introduced in Parliament and is undergoing scrutiny by the Parliamentary Standing Committee on Finance which is expected to deliver its report shortly.