India Inc hopes for action on GST

March 9, 2012

(The views expressed in this column are the author’s own and do not represent those of Reuters)

India Inc has time and again expressed its desire for early implementation of Goods and Service Tax (GST). While implementing GST may take at least a year, the 2012 budget will clearly indicate the Centre’s seriousness in implementing GST.

There are at least three key steps the Centre can consider in this regard:

— Reduction of Central Sales tax (CST) to 1 pct or 0 pct

— Implementation of negative list based service taxation

— Liberalising Cenvat credit mechanism to avoid any kind of cascading

While all of us keep watching the dithering EGoM of state Finance Ministers to bring in a consensus on carrying out massive tax reforms, what we are witnessing is a clear push back. The recent news that states would want the Centre to increase the central sales tax rate to 4 pct (from the existing 2 pct) clearly indicates the mood.

While everyone is hoping for a calibrated reduction/phasing out of CST, this sudden demand takes us back by a few years on GST implementation.

On the service tax front, the introduction of a negative list of services would be considered a big leap forward towards introduction of GST. The negative list of services under the service tax regime is aimed at moving away from category-based taxation to a comprehensive scheme of taxation with fewer exceptions.

Any step taken towards enabling taxing of services by states will go a long way in the implementation of GST, as states are keen to do this. Providing this as a compensatory means of revenue can be one way in which states may relent on phasing out CST.

A rate increase in excise and service tax is something which will be sought to be justified on two counts — a rollback of the economic stimulus doled out a few years ago and that such an increase would take the rates closer towards a possible GST Revenue Neutral Rate.

Another action could be pruning the exemptions under Central Excise and Customs, once again justifying the same on GST considerations.

As the curtain rises on Budget 2012-13, India Inc expects at least an accountable commitment on GST introduction besides pushing proposals on the aforesaid lines.

For now, GST continues to be an important dream for India Inc, which it hopes will come true sooner than later.

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