Wednesday, February 10, 2010

Is the Government ready to roll out the GST?

(This article was published in the 7th Dec, 2009 edition of the Financial Express. The Link for the same can be found here.)

Reaching a consensus between the Centre and states on the issue is the biggest stumbling block

The goods & services tax (GST) is part of the proposed tax reforms aimed at evolving an efficient and harmonised consumption tax system in the country. Presently, there are parallel systems of indirect taxation at the central and state levels. The world over, goods & services attract the tax. But what is the key to the introduction of GST? The first step is to progressively harmonise the service tax rate and the Cenvat rate. The central government plans to roll out GST by April 2010. Therefore, the question is, are we ready to do it?

Well, if recent developments are anything to go by, one might be tempted to say NO. The empowered committee of state and central finance ministers, which is supposed to take the final call on when to implement this tax regime, was slated to meet on October 27 with the final draft of GST, but that meeting was postponed. Complicating matters further, Gujarat and Madhya Pradesh are demanding a delay in the implementation of GST. So, the current status is that there is still no clarity on the tax structure. Estimation of the taxpayer base of GST has not been done yet and the final roadmap is not made, though one could speculate it to have two components central as well as state. The recent recommendations of the 13th Finance Commission calling for the inclusion of real estate, railways and airlines under the ambit of GST, shows that a concrete proposal is still some distance away. Even traders and industry are lobbying for a single, unified GST rate across the country for both goods and services. As the Constitution does not allow the government to legally tax supplies beyond the manufacturing stage, a Constitutional amendment is required to authorise it. That, in turn, calls for forging a consensus on the issue among all stakeholders. The usual disagreement over sharing of proceeds from GST between states and the Centre proves that consensus eludes decision makers. That is the biggest hurdle facing the whole issue. But is the scenario really that bleak? Aren’t governments at the state as well as at the Centre wiser by their experience in implementing VAT?

There are some positive signs. A lot more ground has been covered this time around. And though some issues remain, cooperation at different levels has given some encouraging signals. So, as far as the April 1, 2010 deadline is concerned, it is not impossible to meet. Time is running out for the central government. And, as they say, time matters only when it is running out.

1 comment:

  1. The FE link: