Dual or single is not the only issue

GOODS AND SERVICES TAX DEBATE/ EXPERT EYE

The most recent controversy about GST is whether it should be one national GST or a dual GST. Media reported that a dual GST has been recommended by the GST Committee to the Empowered Committee.

What must have weighed heavily in favour of dual GST is that a single national GST would need substantial Constitutional amendment involving compromise with the federal structure of the country. So it has been a highly desirable development to have dual GST. But this is not the end of the controversy. In fact, there are many issues to be decided regarding the nature of the dual GST. Some of them may involve Constitutional amendment once again.

Even after it is decided that it will be a dual VAT, the issues that have to be decided are very substantial. They are the following:

State GST: The issue is whether it will be a State VAT or a State GST "" that is to say, whether service tax will be included in the State VAT. It is pertinent to note that the CII does not favour the service tax to come to the States. The States do not allow inter-State credit of VAT even now and they will surely not give it for the service tax also. If they are made to give inter-state credit on a destination basis, it will mean a major and substantive change in the VAT structure existing today.

As of now, the big companies in India having establishment at different States will find a fractured Indian market and not a common market. It is much better for the Centre to collect it and distribute to the States. There is also the issue about entry tax, octroi and local taxes which have to be subsumed in the State VAT. The States had never agreed to this earlier. The issue is also about how to make it binding on the States after their initial agreement.

Central GST: The issue is about the actual nature of it. It is now enough to say that it will combine Excise and Service. If it is made into one tax, namely Central GST, then the Central Excise Act and the Service Tax Law (as enshrined in the Finance Act) will have to be abolished and a new GST Act will have to be passed.

The Entry 84 for excise duty in the Schedule 7 of List 1 and Entry 92C of the same List for Service Tax in the Constitution will have to be abolished and a new Entry called "Duty on Value Added on Goods and Services" will have to be introduced. It is easier said than done. A Constitutional amendment may not succeed so easily in the prevailing political circumstances. UP, which is not participating even now in VAT, may play a spoilsport by going to the Supreme Court. A much easier solution will be to keep the present excise law and service law as they are and still make a GST at the Centre possible by adopting the following combination:

(i) Existing laws to remain (without going for a Constitutional amendment),

(ii) A common rate of duty for goods and services such as 14 per cent,

(iii) A comprehensive service tax with a few items in the banned list,

(iv) Complete interchangeability of input credit of goods and services; and

(v) A combined tax return for goods and services.

This will substantially be the same as GST as in Canada & the EU.

The conclusion is that a painless dual GST can be achieved if we have Central GST and a State VAT as above.

smukher2000@yahoo.com