1. The effort to introduce the new tax regime was reflected, for the first time, in 2006-2007 Union Budget Speech. The then Finance Minister Mr. P. Chidambaram remarked that there is a large consensus that the country must move towards a national level GST that must be shared between the center and the states. He proposed 1 April 2010 as the date for introducing GST.

 

2. In May 2007 Empowered Committee (EC) of State Finance Ministers in consultation with the Central Government, constituted a Joint Working Group (JWG), to recommend the GST model. Within 7 months of its constitution that is in November 2007, JWG presented its report on the GST to the EC. The EC has accepted the report on GST submitted by the JWG.

 

What is GST?

 

1. GST is a broad based and a single comprehensive tax levied on goods and services consumed in an economy.

2. GST is levied at every stage of the production-distribution chain with applicable set offs in respect of the tax remitted at previous stages.

3. It is basically a tax on final consumption.

4. To put at a single place, GST may be defined as a tax on goods and services, which is leviable at each point of sale or provision of service, in which at the time of sale of goods or providing the services the seller or service provider may claim the input credit of tax which he has paid while purchasing the goods or procuring the service.

 

5. For instance, when a shoe company produces a pair of shoes, the Central Government charges an excise duty on them as they leave the factory. At the retail level, the state where the outlet is located, charges VAT (different states charge different rates of VAT) without giving credit on the excise duty levied earlier (the state tax is levied on top of a Central tax). In the GST system, both Central and state taxes may be collected at the point of sale. Both components (the Central and state GST) may be charged on the manufacturing cost.

 

6. It integrates the union excise duties, customs duties, service tax and state VAT into a single levy known as GST. GST may be rightly termed as national level VAT on goods and services with only one difference that in this system not only goods but also services are involved and the rate of tax on goods and services are generally the same.

 

Recommendations

 

The JWG of EC laid down various recommendations. Few of them are:

(1)        The committee has suggested that GST, when it rolls out on 1 April 2010, have two components - a Central tax and a single uniform state tax across the country;

(2)        A tax over and above GST may be levied by the states on tobacco, petroleum and liquor; may likely help the report find favour with the states;

(3)   The GST may not have a dual VAT structure but a quadruple tax structure. It may have four components, namely

(a) a central tax on goods extending up to the retail level;

(b) a central service tax;

(c) a state-VAT on goods, and

(d) a state-VAT on services.

 

Given the four-fold structure, there may be at least four-rate categories- one for each of the components given above. In this system the taxpayer may be required to calculate tax liability separately for the different rates of tax;

(4)        The JWG report had suggested that states must tax intra-state services while inter-state services must remain with the Centre.

(5)        Petroleum products, including crude, high-speed diesel and petrol, may remain outside the ambit of GST.

(6)        The report had also mooted elimination of the area-based and sectoral excise duty exemptions that are being given by the Centre.

(7)        Central cess like education and oil cess may be kept outside the dual GST structure to be introduced from April 2010. Besides central cess, the EC of State Finance Ministers has also recommended to keep purchase tax and octroi, which are collected at state and local levels, outside the GST framework;

(8)        The working group had suggested including cess and surcharges, which are levied for specific purposes on taxes at central and state levels, and had suggested to meet the specific requirement through budgetary allocation;

(9)        The report has also recommended keeping stamp duty, which is a good source of revenue for states, out of the purview of the GST. Stamp duty is levied on transfer of assets like houses and land;

(10)      It has also suggested keeping levies like the toll tax, environment tax and road tax outside the GST ambit, as these are user charges; and

(11)      The draft report has recommended that if the levies are in the nature of user chargers and royalty for use of minerals, and then they must be kept out of the purview of the proposed tax.

 

In addition to the above mentioned recommendations, one of the major recommendations given by Kelkar Task Force (KTF) was the implementation of a single union GST. It was contradictory to the recommendations given by most of the scholars and that given by the JWG. KTF recommendation may pose a lot of constitutional hurdles as it demands many amendments to the existing articles of our constitution.