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Posted by SAURAV CHANDRA on April 1, 2010 at 10:39 AM

Indirect Tax structure of the country has made much considerable progress in improving the Indian economy over the years by broadening and rationalizing the system, specially after introduction of the Value Added Tax (VAT) in the Financial Year 2005-06. Recently the most important reform in indirect taxes is the introduction of Goods & Services Tax (GST). The Empowered Committee of State Finance Ministers has prepared the roadmap and guidelines of the Goods & Service Tax (GST) which will be introduced on the 1st of April’ 2011. The broad contour of the GST model is that it will be a dual GST comprising of a Central GST and a State GST. The Center and the States each will legislate, levy and administer the Central GST and State GST respectively which will avoid double taxation across the country and grow collective gain amongst the traders, customers and governments if properly implemented. This indirect tax system will however, have two aspects i.e. good and evil.


The most significant factor and principal deficiency in VAT is the partial credit system under the Central and State taxes for which taxpayers cannot setoff their Input Service Tax or Input Excise credit claim against the Output VAT or vice-versa. Similarly no credit is allowed against the Input Central Sales Tax (CST) which is imposed on inter-state sales and collected by the origin state. In addition to that, there are so many complications with multiple indirect taxes. For example, in West Bengal though the Value Added Tax Act, 2003 has been implemented in the Financial Year 2005-06, the West Bengal Sales Tax Act, 1994 has not been fully repealed. It is still applicable on certain items like Foreign Liquor, Country Liquor, Lottery Ticket, Motor Spirit etc. Moreover, various indirect taxes levied by central, state and local authorities at different rates make the customer at a loss for making statutory compliances which ultimately adds to additional costs in the business. As a result assessees either try to evade the tax liability or motivate their mind for way out about the tax concealment for meeting those additional expenses which actually harm the interest of the public exchequer.


Therefore, we expect that the incoming GST should be transparent, simple and overcome all the stumbling blocks which would encourage voluntary compliances apart from plugging leakages and distortions. So far my knowledge goes, proposed GST is a unified tax, which will apply to goods and services produced or provided in the country. Being a single rate of tax it will erase all inefficient tax administrations as well as discretionary power of the authorities reducing these expensive as well as time consuming litigations. The proposed GST will be leviable not at various points i.e. from manufacturer to retailers but, only at the destination point which will discourage the tax evasion. All export sales would be zero rated and taxes would be fully creditable. Our Indian Constitution being a federal structure, dual GST is essential and inevitable. Some items are to be taxed by the state and some are to be taxed by the center to make their respective exchequers more resourceful. Article 299 of the Constitution of India of course has to be amended before implementation of GST, which is the biggest challenge in the fiscal history of India. Secondly, before introduction of Dual GST a massive training programme is required for the tax practitioners, business peoples and Central & State tax administrators with adequate infrastructure for driving ahead the system smoothly and properly. I think, if GST is really made operational w.e.f 01.04.2011 it will act as a stimulus to the Indian economy even during this economic recession prevailing throughout the globe. According to some economists and tax experts, the proposed new system might face some inherent problems and difficulties at the initial stage but, we may rely on the bold assurance given by the Hon’ble Union Finance Minister Sri. Pranab Mukherjee “main hun na” during the parliamentary debate and so, let us hope for the success of the GST rearing in the lap of the finance ministry.

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Reply janegild
11:08 AM on February 8, 2022