Dual GST structure favoured

Country’s tax design and administration too complex, the survey notes

The pre-Budget Economic Survey asked the government to implement the goods and services tax (GST) through the country as a part of continuing fiscal reforms, while favouring a dual GST structure to be levied concurrently by both the Centre and state.

Citing the recommendation on a dual GST by the empowered committee of state finance ministers, the survey said a dual GST strikes a good balance between Centre and state fiscal autonomy, along with eliminating tax cascading.

"It empowers both levels of government to apply the tax to a comprehensive base of goods and services, at all points in the supply chain. It also eliminates tax cascading, which occurs because of truncated or partial application of the centre and state taxes," said the survey.

Despite improvements in the country's tax design and administration over the past few years, the systems at both central and state levels are still complex, said the survey.

The complexities, it says, are policy related and also due to the present system of multiple rates and exemptions at state and Centre level.

The survey noted that deficiencies in Cenvat (central value added tax) and service tax are grave and need to be looked at. For instance, Cenvat’s already narrowed base is being further eroded by a variety of area-specific exemptions. "The introduction of GST would thus be opportune for deepening the reform process already underway," the survey said.

GST would replace these multi-stage taxes like Cenvat and service tax levied by the Centre and the VAT levied by states.

To facilitate the introduction of GST, the central sales tax (CST) was to be phased out by reducing the CST rate by 1 per cent every year. However, the CST rate today stands at 2 per cent because of the issue of compensating the states for the resultant revenue losses.

For FY 2007-08 and FY 2008-09, the government has received claims of Rs 5,017 crore till March 31, 2009. About Rs 4,119 crore has been released and the balance claims are being processed.