Web Spl: E&Y on roadmap to GSTGaurav Taneja & Vivek Mishra / New Delhi July 1, 2006In his budget speech for 2006, the Finance minister announced the implementation of a national goods and service tax ('GST') by 2010. The announcement has been seen by many as a logical step forward from the state-level Value Added Tax (VAT), and one that will create efficiency and transparency in the way commodities and services are taxed. But why is GST necessary or desirable? Businesses in India cope with a system of commodity and services taxation that is complex and difficult to administer. It is not always clear as to which state has the right to tax a given sale of goods.Further, some transactions (particularly with respect to intangible assets), face a tax demand under both service tax and VAT/sales tax. Finally, VAT is not creditable against service tax or excise duty, nor is VAT creditable across states. Therefore, a service provider that buys goods (which suffer VAT) in order to provide services (incurring a service tax liability) cannot take credit for the VAT on the goods. Equally, a trader that buys goods in one state and sells them in another cannot take credit for the VAT borne in the first state.Ideally, if businesses were presented with a single GST that applies nationally, which is fully creditable between goods and services, it would be extremely simple and transparent. Experience of other countries tells us that such a tax is also buoyant in terms of revenues and leads to better compliance. Everyone wins in this system, possibly other than tax advisors and lawyers!Therefore, the announcement of the implementation of a National GST by the Finance Minister has been welcomed by all. However, what did the Finance Minister mean by a National GST and is such a system indeed achievable within the next few years?A GST classically entails unification of all levies on goods and services. In the Indian context, this would mean merging the following:- tax on manufacture of goods (excise duty levied by the Centre), - tax on sale of goods (CST / VAT levied by both Centre and states), - tax on services (levied by Centre and to some extent by states such as Entertainment tax, electricity cess, etc). Further, tax on services should be applicable on all services (barring some exceptions, such as education, primary healthcare, etc) rather than a limited list of 80+ services which is the case currently. Given the federal system in India where taxing powers are shared by the Centre and States, implementing such a system would involve some form of redistribution of the powers of the Centre and State to tax goods and services.Clearly, this would require amendments to the constitution of India. It would be nobody
