The Task Force appointed by the Thirteenth Finance Commission, Government of India, had issued a report on December 15, 2009 detailing the recommendations on various issues relating to the design and implementation of the proposed GST in India.
The previous article in this column had discussed the highlights of the key recommendations of the Task Force in regard to the GST structure & rates, coverage & classification, subsumation of existing taxes, input tax credits, exemptions, thresholds & composition schemes.
This article addresses the other key recommendations of the Task Force.
Taxation of Inter-State supplies of goods and services
The Tax Force has recommended that the taxation of inter-state supplies of goods and services be governed by the modified banking model. The principle that the Task Force has kept in mind in recommending this model is that of zero rating of goods in the state of origin and the charge of the tax of such goods in the destination states, in line with the objective of introducing a destination based consumption tax thro-ugh the introduction of the GST. The above recommendation has also been extended to consignment sales and branch transfers.
Exports and imports
Exports will be zero-rated, with the benefit of recouping of input taxes as well. Both CGST and SGST will be levied on imports of goods and services into the country. Here again, the incidence of tax will follow the destination principle. Full and complete set-off will be available on the GST paid on imports of goods and services.
Tax administration and compliance
All compliance and enforcement procedures under the CGST and the SGST should be uniform. The basis for division could be turnover or any other criteria which is considered reasonable so that the compliance and administrative burden is minimised. A common IT infrastructure serving the needs of both CGST and SGST should be established by the Central Government.
Registration
The GST registration number should be a PAN based twelve digit alphanumeric number. Dealers having branches across States should have multiple GST registration numbers, based on the number of States in which they operate.
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Payment of taxes
One single payment is to be made both for CGST and SGST by assessees and the transaction reporting should be made through a combined payment and transaction reporting statement in the prescribed format (Form No. GST-I).
Treatment of current area based exemptions
The existing area based exemptions in respect of CENVAT should be discontinued and if need be a direct investment linked cash subsidy may be provided to support the industry, for balanced regional development. The idea is to not break the GST chain with regard to both CGST & SGST.
Taxation of tobacco, alcohol and petroleum products
The Task Force recommends extension of the GST to all goods, without exception. It has also recommended that tobacco, alcohol and emission fuels should be subjected to both GST and excise. However, no set off of input tax credit for excise would be available. Industrial fuels should be subject only to the GST with full benefit of input tax credits.
Fiscal autonomy of states
In a major and welcome recommendation, the Task Force has suggested that in order to permanently institutionalise the States’ collective decision making mechanism, the Empowered Committee of State Finance Ministers (EC) should be transformed into a permanent Constitutional body known as the Council of Finance Ministers under the Chairmanship of the Union Finance Minister with the State Finance Ministers being the members of the Council.
Roadmap for GST implementation
A phased approach should be adopted for implementation of GST whereby in the year 2010-2011, the single CGST and SGST rates of 5 per cent and 7 per cent as recommended should be adopted and transactions in the real estate sector should be brought within the ambit of GST with the levy of stamp duty not exceeding 4 per cent.
In the year 2011-12, the rate of stamp duty should be reduced to 2 per cent. In the year 2012-13, the stamp duty should be eliminated and replaced by a nominal registration fee at a specific rate.
Conclusions and way forward
These recommendations differ considerably from the model and structure of the GST envisaged by the EC as described in the First Discussion Paper released by the EC on 10 November, 2009. Given the significant variations between the recommendations of the Task Force & those contained in the first discussion Paper, it appears likely that several of these recommendations may not find favour with the EC.
Indeed, it appears the EC has, in its meeting of 7th January 2010, discussed and differed with the methodology and the approach of the Task Force Asim Dasgupta, the EC Chairman, is reported to have said that the rates suggested by the Task Force need to be reconsidered as well. Clearly things are in a very fluid stage at this moment and we need to watch developments very closely.
The author is Leader, Indirect Tax Practice, PricewaterhouseCoopers
Email: pwctls.nd@in.pwc.com