AJAY THAKURI

FOCUS Taxes

Diluted with Alcohol

GST picks up speed, without alcohol and petrol. By SHWETA PUNJ

A
WHILE
PETROLEUM
PRODUCTS HAVE
BEEN KEPT
WITHIN THE
PURVIEW OF THE
GST, THESE WILL
BE TAXED AT
ZERO PER CENT
FOR THE INITIAL
2-3 YEARS

fter nearly a decade of discussions and

negotiations, the states are finally on
board to implement what is being
touted by Finance Minister Arun Jaitley as the
single biggest tax reform since Independence:
the Goods and Services Tax (GST). An indirect
tax that will subsume all other indirect taxes
on goods and services, the GST aims to usher
in a unified tax regime across India.
The broad-based consumption taxes that
the GST would replace are CENVAT and Service
Tax levied by the Centre and the Value Added
Tax (VAT) levied by the states. India is set to
move to the new tax regime from April 1,
2016. A Constitutional Amendment Bill to
facilitate the GST was introduced in the Lok
Sabha on December 19 and will be taken up

in Parliament in the next session.

While India Inc is relieved, on the political
front this is the one thing that the government
can be proud about in what was largely a dull
winter session. But in doing so did it give away
too much, maybe dilute the concept of the
GST? Perhaps so.
The base of the GST has been reduced to
exclude alcohol. While petroleum products
have been kept within the purview of the GST,
these will be taxed at zero per cent for the initial two-three years to ensure smooth transition to the GST regime. GST on petroleum
products has been a vexed issue as the states
get nearly 30 per cent of their tax revenues
from these goods. Tobacco, however, has
been included.

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FOCUS Taxes

BY ALLOWING
MANUFACTURING
STATES TO LEVY
A TAX AT THE
POINT OF ORIGIN,
THE CENTRE HAS
TRIED TO BRING
IN THE GST AND
ALSO KEEP THE
ELEMENTS OF
THE CST

The new Bill also

Bill. But it was those
GIST OF GST
provides for compensastates that bargained
tion in the initial years
hard for the one per cent
Bill proposes to
full compensation for
additional levy.
give states ve-year
the initial three years, 75
Sushil Kumar Modi,
compensation timeline for
per cent for the fourth
former
chairman of the
revenue losses
year and 50 per cent for
empowered committee of
the fifth year. Finance
state finance ministers
Petroleum products not
Minister Jaitley has alon the GST, recounts that
subject to GST, until the
ready decided to release
he had almost built a
GST council decides
`11,000 crore to states
consensus on keeping
States with
towards Central Sales
the petroleum products
manufacturing activity
Tax (CST) compensation.
within the ambit of the
will get to levy 1% tax on
new tax. We will have
Shivraj Singh Chouhan,
to see what the rate
Chief Minister of Madhya
inter-state trade
would be..., he had told
Pradesh, told Business
Alcohol will be outside the
Business Today in
Today that concerns
ambit of GST
November. The commitabout compensation for
tee has suggested a
revenue loss and taxStates will be empowered
Revenue Neutral Rate
sharing mechanism
to tax imports. Currently,
for GST implementation
have been addressed.
states levy VAT & Centre
The Centre has also
with Central GST rate at
levies customs duty
given in to the demands
12.77 per cent and a
of the BJP-ruled states
state GST rate at 13.99
such as Maharashtra, Haryana and Gujarat
per cent, which is higher than the current
to impose an additional levy of one per cent on
combined Centre and State VAT rate of 26.5
supply of goods in inter-state trade for two
per cent (CENVAT of 14 per cent and VAT of
years. A YES Bank analysis shows that states
12.5 per cent). A near-27-per-cent tax rate
would be one of the highest in the world, makwith higher rate of VAT on petroleum products
ing compliance an issue.
or states where petroleum products account
A good GST is one with a broader base
for bulk of revenues will be adversely impacted. It includes Madhya Pradesh (28.27
and lower rate; 27 per cent rate is just too
per cent), Andhra Pradesh (31 per cent) ,
high, says Poddar. But with the GST, we are
Maharashtra (27.62 per cent), Gujarat (25.46
looking at a monumental mind-shift from orper cent) and states which have VAT above the
igin-based tax to destination tax for the manufacturing sector. Even in its current form, it
mandated 12.5 per cent.
will reduce the number of touch points on
With the concessions that the Centre has
taxes. In a perfect world, there is one-tax GST.
made, they may have sown the seeds of a
What we have currently is the most receptive
more watered-down GST. There is still the posystem in the world, says Rajeev Dimri, Head,
tential to broaden the base and design a clean
Indirect tax, BMR Advisors. Whatever is being
GST, but I am not very optimistic, says Satya
Poddar, Senior Tax Partner, EY India.
proposed is falling short of global standards
but it is a huge step forward. And remember
The GST is supposed to be a destinationcompromises have to be made.
based tax, with tax at the final point of retail.
After the constitutional amendments are
By allowing manufacturing states to levy a tax
passed by both houses of Parliament, half of
at the point of origin, the Centre has tried to
the state legislators will have to ratify them.
bring in the GST with concessions and also
This will be followed by a discussion on the
keep the elements of the CST, which the GST
was supposed to replace. This is like levying
GST in both houses of Parliament. State legislaincome tax and expenditure tax. It is a confustors will also have to table and pass their own
ing tax system, says Vivek Mishra, Leader,
GST Bills. It is still a long way towards a fullIndirect Tax, PWC.
fledged GST regime. ~
It was expected that the Centre would be
WITH INPUTS FROM ANILESH S. MAHAJAN
able to build a consensus, especially among
the BJP-run states, on the salient features of the
@shwetapunj

20 BUSINESS TODAY January 18 2015

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12/26/2014 10:08:36 PM

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