July , 2017
GST - possibilities and problems
14:31 pm

B.E. Bureau

Prof. Ashim Dasguptawas a Finance Minister of West Bengal for 24 years. He had been Chairman of the Empowered Committee of the State's Finance Ministers which prepared the first
formulation of theGST laws in 2009. In his exclusive interview with BEs Kishore Kumar Biswas he explains that GST is beneficial for the country as a whole provided it is formulated in the right direction. He alsocriticises the unprepared-ness of the governmentbefore implenting it. Excerpts follow :


Q. Why GST at all? Why is it called a historic reform?

A. A step towards a change in the tax structure would be called a reform if as a result there is a reduction in the tax burden on the manufacturer, traders and also for common consumers and at the same time a growth in revenue for the government  of both the centre and the states. It is in this sense the introductions of VAT (value added tax) to central government in 2003 and the states' VAT in 2005-06 were correct steps towards a reform. In the pre-VAT situation there used to be tax on tax or a cascading effect of taxation especially with respect to indirect taxes. For instance, before a commodity was produced there was a tax on inputs and with that tax load when output will be produced there would be tax on output itself. That is, an additional burden. In VAT this input tax load is allowed to be deducted from the payable output tax.

Q. Then what about of the revenue of the government?

A. On the effect of revenue of the government the advantage
of VAT was to avail of this benefit of input tax reduction. The input tax is to be paid first of all with appropriate documentation. There is a self monitoring of self compliance. In fact it was observed the rate of growth of tax revenue became double from around 11% to 22%. In West Bengal it went up to 25% in 2010-11.

There are, however, certain deficiencies with both central and state VAT. In both cases there were numerous other taxes. There were central government taxes like additional excise duty, additional duty on medicinal products, additional customs duty, inter state sales tax. In the states there were additional taxes such as entry and luxury tax, entertainment tax, betting tax. It would be useful if all such taxes were subsumed into one tax. In addition the states have an additional problem because of services being categorized as residuary powers. Only the central government could levy and states were denied it. This we will have to be attended by the states now.

Q. Actually the structure of the GST is debatable as………

A. Keeping all this in mind P Chidambaram, the then Union Finance Minister, had proposed in the Union Budget in 2007-08 the introduction of GST in the country. He requested the Empower Committee of States’ finance ministers to work out the framework of GST. After repeated discussion with finance ministries and officials of the states and the central government and tax specialists like professor Parthasarathi Som (Financial advisor of Union government). The Empower Committee put this work in less than two years and the model was written in terms of a book entitled to the discussion on GST and released in November 2009. This framework was clearly stated as a model of dual GST. One part was for central government, CGST and the other part for SGST. Notice that GST of both central and state governments will be levied both on goods and services and also input tax credit is also involving again production of goods and services.

In that structure there had been a place for an exempted list and a special rate of 1% for gold and silver. There should be two rates. One is 5% for necessary commodities and industrial inputs and a general rate of 14% for other commodities. But it was not retained unfortunately in the final version. There are two other rates of 18% and 28%.

Q. In India the rates are many and in many cases it is highest in the world. Can the structure not be changed? 

A. To our knowledge in other countries with GST generally it is of 2 rate structures without as high a rate as 28%. In the constitutional amendment, now an Act, there is a reference to GST Council with Union finance minister as the Chairman
and Minister of States as members. They have been given the power to recommend the rates of CGST and SGST to parliament and states legislative houses. Hence we note that there are genuine grievances faced by traders and manufacturers. So the rates should seriously be analysed by the Council and necessary modification can be made.

Secondly, there is always a need for adequate training and communication and explanation regarding GST. This can be done by the GoI by meeting leaders of all India trade
bodies. There should be similar meeting in each trade
and in each district by the recommendation of the state governments. Computerization or access to computer is an integral part of GST. The GoI should interact with states
for providing financial support in this regard. We will all
learn from such action.

Q.  A section of people think that the GST may not at all be fruitful. How can they be made aware of this?

A. This anxiety is about the GST structure itself and more specifically rates of certain commodities. For this extensive publicity should be there. There should be simply written booklets in local languages and concrete action taken to allay the anxiety relating to rates. On the whole people will be benefited in it provided it is based on consensus.

Q.  Regarding anti profiteering measures…….

A. Anti profiteering measures are to be strictly monitored by the states and centre.

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