Budget wishlist: Assocham votes for GST

As part of its pre-Budget wish list, industry body Assocham has recommended that the government replace multiple central and state taxes with a General Sales Tax (GST).

According to the chamber, the present system has had an adverse impact on the competitiveness of Indian industry.

"Multiple taxes with different rates make the tax system complex, increase litigation and cost of compliance, and also encourage tax evasion," it said in its pre-Budget memorandum for 2007-08.

Under the present system, excise duty or service tax is levied on the cost of goods or service, which also includes an element of Value Added Tax (VAT) in the input cost.

"Similarly, VAT is levied on the sale price of manufactured goods, which includes an excise duty element. One tax is levied on another artificially, increasing the cost of indigenous production due to the cascading effect of multiple taxes at different stages," Assocham said.

It suggested setting up of an empowered committee consisting of state and central representatives to finalise the structure of GST.

"The replacement of multiple taxes with GST will increase the tax-GDP ratio by 2 per cent." The government should integrate excise and service tax into a "central VAT" to facilitate the introduction of GST at a later stage.

On excise duty, the chamber recommended that its rate be reduced from the current 16 per cent to 14 per cent in the 2007-08 Budget and to 12 per cent at a later stage.

The total incidence of indirect taxes on goods produced in India was quite high in comparison with developed and other developing countries, it said.

It ranged between 30 and 40 per cent of the sales price for most indigenous goods. A 2 per cent reduction in excise duty, with the consequent lower incidence of state and local taxes, would result in reduction of prices by 3 to 5 per cent, the memorandum said.