Finance Commission Report on GST flawless

The Report on the goods and services tax (GST) is a breath of fresh air. It is indeed visionary and comprehensive and truly ‘flawless’ as the authors claim. It comes close to the original concept that outlined in his “Report on Implementation of the Fiscal Responsibility and Budget Management Act, 2003”.

Notable features of the Task Force recommendations are:

 

  • A single tax rate of 7 per cent for the states and 5 per cent for the Centre.

     

  • Inclusion of all goods and services in the including real property, banking services, petroleum, electricity, alcohol and tobacco.

     

  • Subsuming of all indirect taxes, including stamp duties, entry tax not in lieu of octroi, purchase tax, and the Central Sales Tax (CST).

     

  • Full endorsement of the destination principle of taxation by shifting the tax base from production to consumption.

    These well designed features will result in tremendous simplification and rationalisation of tax structure and could prove to be the tipping point for converting the Indian tax regime from one of the worst to one of the best in the world. It would yield substantial dividends to the Indian economy providing gains within a range of 0.9 to 1.7 per cent of GDP. It will strengthen India as a single common market and provide a stable source of revenue for the states and local governments. The cooperation between the Cente and states in the design and implementation of GST will dawn a new era of cooperative federalism.

    One of the interesting features of the report is the creation of a council of state finance ministers, which will be responsible for any modifications to the design of GST and for providing compensation to individual states for any loss in revenues due to GST. This body is an innovative compromise between the fiscal sovereignty of the states and the Centre and the need for harmonisation and cooperation.

    While the paper has clearly defined a vision for the new tax regime, there are many hurdles that remain. Even though the model outlined by the Finance Commission is a win-win for both the Centre and the states, the states may be reluctant to take the giant leap that it entails. The states have been skeptical of the adequacy of the 7 per cent to replace their current revenues.

    The Finance Commission has spent endless hours to confirm the validity and robustness of this calculations. This rate is indeed adequate to replace the current state taxes and provide some surplus from improved compliance and larger GDP, which has not been factored by the Finance Commission while calculating the rate.

    The second concern of the states will be the inclusion of sectors such as real estate and alcohol, which are the exclusive reserve of the states under the current constitutional division of taxation powers. Modern GSTs make no exceptions for such sectors. Their inclusion in GST is essential to eliminate cascading and to ensure proper reporting and compliance by all sectors of the economy.

    There are also certain technical features in the design of GST, which may prove to be challenging. Most notable among these is the taxation of banking services. No country in the world has been able to design a model for inclusion of financial services within a VAT/GST framework. India, if successful, will chart a new course, which could well become the model, which the rest of the world could emulate.

    Overall the Finance Commission has designed a balanced package, which is good for the country, the governments and for taxpayers. It would be fitting finale to the journey of Prime Minister Manmohan Singh to free up the economy from the shackles of regulation and archaic policies.

    (The author is Tax Partner, Ernst & Young, India)

  •  

    image
    Business Standard
    177 22
    Business Standard

    Finance Commission Report on GST flawless

    Satya Poddar 



    The Report on the goods and services tax (GST) is a breath of fresh air. It is indeed visionary and comprehensive and truly ‘flawless’ as the authors claim. It comes close to the original concept that outlined in his “Report on Implementation of the Fiscal Responsibility and Budget Management Act, 2003”.

    Notable features of the Task Force recommendations are:

     

  • A single tax rate of 7 per cent for the states and 5 per cent for the Centre.

     

  • Inclusion of all goods and services in the including real property, banking services, petroleum, electricity, alcohol and tobacco.

     

  • Subsuming of all indirect taxes, including stamp duties, entry tax not in lieu of octroi, purchase tax, and the Central Sales Tax (CST).

     

  • Full endorsement of the destination principle of taxation by shifting the tax base from production to consumption.

    These well designed features will result in tremendous simplification and rationalisation of tax structure and could prove to be the tipping point for converting the Indian tax regime from one of the worst to one of the best in the world. It would yield substantial dividends to the Indian economy providing gains within a range of 0.9 to 1.7 per cent of GDP. It will strengthen India as a single common market and provide a stable source of revenue for the states and local governments. The cooperation between the Cente and states in the design and implementation of GST will dawn a new era of cooperative federalism.

    One of the interesting features of the report is the creation of a council of state finance ministers, which will be responsible for any modifications to the design of GST and for providing compensation to individual states for any loss in revenues due to GST. This body is an innovative compromise between the fiscal sovereignty of the states and the Centre and the need for harmonisation and cooperation.

    While the paper has clearly defined a vision for the new tax regime, there are many hurdles that remain. Even though the model outlined by the Finance Commission is a win-win for both the Centre and the states, the states may be reluctant to take the giant leap that it entails. The states have been skeptical of the adequacy of the 7 per cent to replace their current revenues.

    The Finance Commission has spent endless hours to confirm the validity and robustness of this calculations. This rate is indeed adequate to replace the current state taxes and provide some surplus from improved compliance and larger GDP, which has not been factored by the Finance Commission while calculating the rate.

    The second concern of the states will be the inclusion of sectors such as real estate and alcohol, which are the exclusive reserve of the states under the current constitutional division of taxation powers. Modern GSTs make no exceptions for such sectors. Their inclusion in GST is essential to eliminate cascading and to ensure proper reporting and compliance by all sectors of the economy.

    There are also certain technical features in the design of GST, which may prove to be challenging. Most notable among these is the taxation of banking services. No country in the world has been able to design a model for inclusion of financial services within a VAT/GST framework. India, if successful, will chart a new course, which could well become the model, which the rest of the world could emulate.

    Overall the Finance Commission has designed a balanced package, which is good for the country, the governments and for taxpayers. It would be fitting finale to the journey of Prime Minister Manmohan Singh to free up the economy from the shackles of regulation and archaic policies.

    (The author is Tax Partner, Ernst & Young, India)

  •  

    RECOMMENDED FOR YOU

    Finance Commission Report on GST flawless

    The Thirteenth Finance Commission Report on the goods and services tax (GST) is a breath of fresh air. It is indeed visionary and comprehensive and truly ‘flawless’ as the authors claim. It comes close to the original concept that Vijay Kelkar outlined in his “Report on Implementation of the Fiscal Responsibility and Budget Management Act, 2003”.

    The Report on the goods and services tax (GST) is a breath of fresh air. It is indeed visionary and comprehensive and truly ‘flawless’ as the authors claim. It comes close to the original concept that outlined in his “Report on Implementation of the Fiscal Responsibility and Budget Management Act, 2003”.

    Notable features of the Task Force recommendations are:

     

  • A single tax rate of 7 per cent for the states and 5 per cent for the Centre.

     

  • Inclusion of all goods and services in the including real property, banking services, petroleum, electricity, alcohol and tobacco.

     

  • Subsuming of all indirect taxes, including stamp duties, entry tax not in lieu of octroi, purchase tax, and the Central Sales Tax (CST).

     

  • Full endorsement of the destination principle of taxation by shifting the tax base from production to consumption.

    These well designed features will result in tremendous simplification and rationalisation of tax structure and could prove to be the tipping point for converting the Indian tax regime from one of the worst to one of the best in the world. It would yield substantial dividends to the Indian economy providing gains within a range of 0.9 to 1.7 per cent of GDP. It will strengthen India as a single common market and provide a stable source of revenue for the states and local governments. The cooperation between the Cente and states in the design and implementation of GST will dawn a new era of cooperative federalism.

    One of the interesting features of the report is the creation of a council of state finance ministers, which will be responsible for any modifications to the design of GST and for providing compensation to individual states for any loss in revenues due to GST. This body is an innovative compromise between the fiscal sovereignty of the states and the Centre and the need for harmonisation and cooperation.

    While the paper has clearly defined a vision for the new tax regime, there are many hurdles that remain. Even though the model outlined by the Finance Commission is a win-win for both the Centre and the states, the states may be reluctant to take the giant leap that it entails. The states have been skeptical of the adequacy of the 7 per cent to replace their current revenues.

    The Finance Commission has spent endless hours to confirm the validity and robustness of this calculations. This rate is indeed adequate to replace the current state taxes and provide some surplus from improved compliance and larger GDP, which has not been factored by the Finance Commission while calculating the rate.

    The second concern of the states will be the inclusion of sectors such as real estate and alcohol, which are the exclusive reserve of the states under the current constitutional division of taxation powers. Modern GSTs make no exceptions for such sectors. Their inclusion in GST is essential to eliminate cascading and to ensure proper reporting and compliance by all sectors of the economy.

    There are also certain technical features in the design of GST, which may prove to be challenging. Most notable among these is the taxation of banking services. No country in the world has been able to design a model for inclusion of financial services within a VAT/GST framework. India, if successful, will chart a new course, which could well become the model, which the rest of the world could emulate.

    Overall the Finance Commission has designed a balanced package, which is good for the country, the governments and for taxpayers. It would be fitting finale to the journey of Prime Minister Manmohan Singh to free up the economy from the shackles of regulation and archaic policies.

    (The author is Tax Partner, Ernst & Young, India)

  •  

    image
    Business Standard
    177 22

    More News

    • Modi to chair meeting on island development soon Modi to chair meeting on island development soon
    • Higher domestic prices dent cotton exports from India Higher domestic prices dent cotton exports from India
    Widgets Magazine

    Widgets Magazine

    Upgrade To Premium Services

    Welcome User

    Business Standard is happy to inform you of the launch of "Business Standard Premium Services"

    As a premium subscriber you get an across device unfettered access to a range of services which include:

    • Access Exclusive content - articles, features & opinion pieces
    • Weekly Industry/Genre specific newsletters - Choose multiple industries/genres
    • Access to 17 plus years of content archives
    • Set Stock price alerts for your portfolio and watch list and get them delivered to your e-mail box
    • End of day news alerts on 5 companies (via email)
    • NEW: Get seamless access to WSJ.com at a great price. No additional sign-up required.
     

    Premium Services

    In Partnership with

     

    Dear Guest,

     

    Welcome to the premium services of Business Standard brought to you courtesy FIS.
    Kindly visit the Manage my subscription page to discover the benefits of this programme.

    Enjoy Reading!
    Team Business Standard