GOODS AND SERVICE TAX ( GST) REGIME

Prepare For Launch 

India should keep its date with GST rollout


Finance minister Pranab Mukherjee has described a goods and services tax (GST) system as critical for economic reforms. Should India keep the date April 1, 2010 for GSTs launch, it would score high points on tax reform by imposing a single levy for goods and services. And it would align with a tried and tested practice in many nations. GST here would subsume excise duty and service tax at the Centre and VAT at the state level. It would operate as a dual system with two tax rates, one imposed uniformly at the state level and the other charged by the Centre. 
GST has many virtues. Improving tax compliance, it will boost public finances. Taxes under the current labyrinthine and non-transparent system are separately administered by the Centre and states. The prevailing multiplicity of taxes often results in tax duplication. If a manufacturer is taxed twice while producing a commodity, the anomaly translates into higher prices. Reducing the tax component in product pricing will benefit consumers and give Indian firms a competitive edge. Also, varying state-level taxes prevent uniform pricing and seamless trade. GST will transform the countrys economic landscape by creating a common market. Greater business efficiency will result since attempts at tax avoidance a feature of the fragmented market will reduce. 
But a lot remains to be done. First, consensus is required on a uniform tax rate. Second, some states have asked whether a GST-supporting IT and administrative infrastructure will be up and running in time. Third, states have to streamline their tax structure as a preparatory step while central sales tax on inter-state movement of goods will need abolishing if GST is to facilitate Indias economic integration. In addition, states will need reassuring on the issue of reimbursement for any revenue loss. Tamil Nadu has signalled that the Centre wont have it easy on this score, in view of still unfulfilled compensation claims related to VATs implementation. 
Valid concerns on GSTs debut can be addressed provided theres genuine commitment to tax reform. It wont help if political parties dont resist the temptation to play to the gallery. Some BJP-ruled states have reportedly dubbed GST antipoor , a standard prettifying term for stalling tactics. GST fulfils all the criteria of a good tax: its easy to understand, not difficult to implement given political will and, in a triple feat, is good for tax collectors, consumers and business. Thats why it has till now been supported across the political board. It wont serve anyones interest if, in its home run, GST were to be tripped by political brinkmanship.