The proposed dual goods and services tax (GST) would subsume more taxes than envisaged and eventually all the indirect taxes, as a phased approach was being adopted, said chairman of the empowered committee of state finance ministers, Asim Dasgupta.
Based on the tax compliance in the initial year of GST, the possibility of subsuming more taxes could be reviewed. “This is a phased approach to GST. There is a view that you start with the extreme, like subsume all the taxes, and if there is a loss of revenue, then who will compensate the states for the loss. It might not be possible for the Centre also to compensate the states beyond a certain point. That's why when we are introducing, not all taxes are included in it. If the tax compliance increase, we will review the situation,” said Dasgupta.
The first discussion paper on GST has left out many indirect taxes like stamp duty, toll tax, passenger tax and road tax.
Presently, more than 300 goods are exempted in the Centre’s list and about 99 are exempted from the value added tax (VAT) by states. Also about 60 items are common to both list. The government is also discussing whether to include or exclude purchase tax in the GST.
“Even after subsuming these taxes, not all could be subsumed in GST, or for that matter even stamp and registration fee and electricity duty. This is because while GST will be a major reform in tax system, states will lose in some account, and gain in some...there is a worry in the minds in the states, as this will be alright once tax compliance takes place. Sometimes tax compliance takes place not the in the first year, as we saw in the case of VAT,” he said. This apart, in the proposed constitutional amendments for GST implementation, the government may retain some fiscal autonomy of the states, keeping in mind the exigencies.
“If some exigency happens, in our proposed constitutional amendment, therefore a subsequent legislation, we are trying to strike a balance the need of harmony for the country, and the desire or correct perceptions of the states that the autonomy should be respected. All federal structures have faced the problem. We are going to take care of it through constitutional amendments,” said Dasgupta.
The implementation of GST will require constitutional amendments for empowering states to levy service tax, GST on imports and consequential issues, as well as corresponding central and state legislations with associated rules and procedures. A joint working group was constituted in September to prepare a draft legislation for the amendments and will submit their suggestions by November-end. The legislation regarding this will be tabled in the budget session of Parliament.
On the proposed revenue neutral rate for GST, Dasgupta said a consensus between states regarding this would be reached by November-end.
The empowered committee had decided to adopt a two-rate structure for GST, which would have a lower rate for necessary items and goods of basic importance, and standard rate for goods in general. There will also be a special rate for precious metals and a list of exempted items.
