The Bangalore Chamber of Industry and Commerce (BCIC) has urged Finance Minister Pranab Mukerjee to take steps to merge the present central levies such as excise, service tax and customs into a single levy which may be referred to as the Union GST as part of the proposed legislation on GST.
In a pre-budget memorandum on indirect taxes submitted to the government, the BCIC has recommended that policy announcements on this aspect may be made in the Union Budget itself. “The rate of taxation for both goods and services should be the same so that substantial prospect of litigation based on classification is eliminated. Further, the Central Government should endeavour to implement the law on GST at the earliest after giving trade and industry sufficient information on the proposed legislation, the legislative framework for goods and services, point of taxation rules, the median GST rate and time to enable them adapt to their IT systems,” the chamber said in a statement.
As regards the concept paper issued by the board on introduction of negative list of services, it is highlighted that the positive list has the advantage of definitiveness, which is a pre-requisite for any taxation law. For this reason, despite an increase in the number of services, levy of service tax only on a positive list of taxable services is to be preferred. As also stated in the Concept Paper, the positive list has already attained a certain level of awareness and stability in administration. Further, judicial precedents have emerged on the law which has brought about a higher certainty, BCIC said.
“The proposal to levy services tax based on a negative list of services is pre-mature. The negative list scheme of taxation would operate well only where the levy of tax on goods and services is unified and accordingly the negative list approach should be deferred until the introduction of GST,” it said.
BCIC also suggested that place of supply rulesôplace of consumption rules for services may be notified and implementation of levy of service based on negative list be considered only after these rules are clear. The chamber fears that the introduction of a negative list could cause an increase in the overall cost of operations and with already thin margins and declining trend of revenues in major sectors, introduction of negative list will not favour the masses and be detrimental to growth than being an engine for reform.
The Finance Minister in 2004 had introduced an Educational Cess of 2 per cent and additional Secondary and Higher Education Cess of 1 per cent in 2007. This 3 per cent Educational Cess is calculated on the aggregate of customs duty payable on the imported item.
Further, this 3 per cent Educational Cess on Customs Duty is not allowed for the purpose of availing CENVAT credit.
Consequently, it increases the cost of import. Such costs hinder the exporters in being price competitive in the international market. Therefore, BCIC recommends that Educational Cess on Customs Duty should either be abolished or else CENVAT credit of Educational Cess on Customs Duty should be allowed. Such a measure would be a step in right direction considering the present slower growth rate.
