GST - It must be better late than never!!

GST- It must be better late than never!!

Prepared By:

CA Preeti Parihar and

CA Rajani Thanvi

Introduction:-

“Continuity gives us roots; change gives us branches, letting us stretch and grow and reach new heights.” How truly it has been said. The change is the need of time, change is innovation, but it becomes arduous when it is not accepted by that people for whom it was made. Whenever any change is about to come in our country it hangs in the way cause of lack of cooperation. To change the system of Indirect taxation Government brought a new system for implementation called GST-The goods and services tax. It was heard that GST will bring a drastic revolution in Indian Indirect Taxation system but the real picture shows something else as it itself become a reason of struggle between Central and states.

Need:-

Indian entrepreneurs are loaded with a number of taxes. Almost every business transaction suffers a different tax. For services, it is service tax, for manufacture it is Excise Duty, for sale within state it is VAT, for inter-state sale it is CST, for income earned it is Income Tax, for wealth created it is wealth tax, etc. These are mere examples for the consultants, but for the businessmen, they mean a lot of compliances involving a significant number of man power and money. In order to relieve the businessman from some of the taxes, government has planned to bring a composite levy – The GST which is said to bring a tax-revolution in the country. It is said that the GST will simplify the complex tax structure of the country and will replace around 16 central and state taxes including the service tax, excise duty, VAT, etc. while maintaining a collaboration between the Centre and the State.

Benefits:-

The main beneficiaries will be the business personnel. At present, there are a no. of taxes governed by different Acts and rules. The separate records are to be kept, separate returns are to be filed, different dates are there for payment of taxes and filing of returns, etc. which require a significant amount of man power and money. However, the GST, when implemented, will replace many of the taxes and will obviously reduce the paper work, man power and money. Further, there are no. of ambiguities in certain cases which makes it difficult to ascertain as to which law is applicable. For eg. software and SIM cards are service or goods? The service tax department says it is a service while the sales tax department says it is sale of goods. The GST will resolve the issue. The Government too will be benefitted. It is anticipated that the GDP of the economy will be increased by $500 billion and exports will also increase by 15%.

Beginning of GST:-

The Thirteenth Finance Commission, as constituted by the President on November 13, 2007 to give recommendations regarding the Central-State Fiscal relations during the year 2010-15. The Commission recommended a model GST structure and also recommended a grant of Rs. 50000 crores for its implementation. The recommendations were accepted in principle and discussions were carried out between the Centre and State.

The Empowered committee of state finance ministers has released the First discussion paper on GST on 10.11.2009 and it was proposed that GST is going to be implemented on 01.04.2010 with its new developments regarding unvarying tax rates all over country, removing cascading effects of Cenvat and service tax with set off by making a chain of set-off for hierarchy of Producer/manufacturer/service provider to Retailer/End user level. For this purpose GST is to be introduced at state level. But as history repeats itself Government had faced and still facing intricacy of different opinions of states in the way of implementation of GST. It is not an easy task to combine all the provisions and demands of the states having different thoughts and opinions. When everyone was waiting to greet with GST it was recommended in Report of Task Force on GST that it will be postponed till 01.10.2010 due to oppositions raised by states which is again delayed by 01.04.2011.

In the middle:-

On oppositions made by states, Government presented a revised draft bill of GST in order to arriving at consensus with the states. In the revised bill Government has provided veto power to the Union Finance Minister relating to state subjects matters on taxation issues. Then after Finance minister had offered some concessions on major demands of states relating to simplification of tax administration and replacement of multiple levies of taxes like CST, VAT, Excise, Service tax into a single tax. Government also proposed dual rate system to be included in GST system but because of this new system states may have revenue loss in initial year of implementation of GST. For this it was cleared by the government for compensation to states for switchover to the new tax regime including special incentives to those states such as Punjab and Haryana for loss out of purchase tax. The Government also agreed to exclude crude oil, petrol, diesel and ATF from the GST structure on demand raised by states.

Present scenario:-

But as it was predicted this bill also comes in litigations between states and central. The Empowered Committee of State Finance Ministers on GST has rejected the constitutional amendment bill on 01.08.2010. The BJP-ruled states, including Gujarat, Madhya Pradesh, Chhattisgarh, Himachal Pradesh and few others had opposed the constitutional amendment saying that all powers of the states have been snatched through the constitutional amendment. Chairman of the Empowered Committee of State Finance Ministers commented on the constitutional amendment that states were against infringement on their financial autonomy and have certain reservation on the provision of draft bill for the GST council and the GST Disputes Authority hence this draft bill is not acceptable in this form to the states. However some states were in favour of this amendment.

On coming of oppositions from many states, Centre has given up on the matter of veto powers given to the Union Finance Minister. The veto power has been withdrawn from the constitutional amendment bill on GST with giving a statement that central FM had no any intention of becoming the Super Finance Minister to interfere with the State GST.

In the latest meeting of state finance ministers and centre for GST, held on 20.09.2010 many states has accepted the approach of new draft of GST bill except few mainly Gujarat and Madhya Pradesh who still have different viewpoint. In that meeting the Madhya Pradesh government given an idea of an alternative model of the GST and BJP rules states has supported to it. Also some other states have allotted one month time for consideration to make their opinion on revised bill. In the meeting the states has stressed on retention of their rights and wished some more changes in the proposed Act.

Next what?

Recently, while addressing an interactive session organized by the Merchants' Chamber of Commerce at Kolkata, the chairman of empowered Committee – Mr. Asim Dasgupta, who is also the finance minister of West Bengal; indicated that the ongoing conflicts between the states regarding GST are about to resolve. The matter will be on board once again on October 30, 2010; when the empowered Committee will meet again. The points of dispute – the Dispute settlement mechanism of GST and GST council constitution will be discussed therein.

Before Leaving:-

Government has to obtain categorical support of all the sates since two-third majority is required for ratification of GST. But some states ruled by BJP and other opposite parties are not happy on implementation of GST. So it becomes a necessity for both Centre and States to have consensus on GST very soon for bringing the GST in actuality in 2011. But after coming of statement of Revenue Secretary in this august that introduction of GST will miss the deadline of April, 2011 it becomes unambiguous that the matter of GST becomes political issue rather than an economical or legal one. It is ever called that “Better late than never” so we can hope that the delay in coming of GST will bring a fruitful result with it’s implication. Let we hope that GST bill will be presented in winter session and political differences will shut down.

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GST - It must be better late than never!!

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