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Undercover
  
INDIA : DEBATE ON GOODS AND SERVICES TAX
A uniform tax policy
GST will help not only the common people but also the nation
10/10/2010



The irony with the nation called India is that it often has to compromise with national interests for political gain. Even the current debate surrounding the uniform tax policy which is garnering enough attention these days is not an exception. The current FM Pranab Mukherjee envisioned a uniform tax policy by proposing the implementation of Goods and Services Tax (GST). If applicable, it can simplify India's present rigid tax system. However, it is marred by debates, surprisingly not on how it will benefit India but on who among Centre and states gain more.

GST is tax over final goods and services which are ready for consumption. The most important feature of it is its simplicity to calculate. GST is expected to be the biggest reform in India's history of taxation. This will replace multiple taxations, including VATs imposed by the states, and two major central taxes Ė Central Excise and Service tax. People currently pay between 22 per cent and 24 per cent of their income, taking all central and state taxes together. But if GST becomes applicable, tax burden on the people will apparently come down signficantly. The Kelkar Committee, which advises the government on defence acquisitions, suggested that GST should be about 20 per cent. Experts believe that this in reality varies between 14 per cent to 16 per cent in those countries that have already implemented GST.



Mukherjee aimed to introduce it by April 1, 2011. Unfortunately, that canít be met as he has failed to introduce it in the monsoon session. This is because some states are reluctant with the federalist format of the GST proposal. Tax is a big source of revenue for the states. The average tax revenue of states contributes around 6.7 per cent to the GDP. Karnataka generates 11 per cent of GDP through taxes. The speculation is that the current format of GST would grossly disbalance the Centre-state relation giving more power to the Centre; this is already a major concern for states as they feel that they anyway have little say over the policy formation in New Delhi. Karnataka and Gujarat supported GST but Tamil Nadu and MP opposed the GST implementation. Appeals from the states are not entirely irrelevant as development at the state level can only invite investments and prosperity. Centre did agree to propose dual GST where both the Centre and the state will charge different rates through mutual acceptance.

Interestingly, 140 nations across the world adopted GST as a part of their uniform tax policy. France had introduced it as early as in 1954. And we are still debating on whether to adopt it or not! India can learn from Brazil and Canada and in the way they have adopted the double tax bracket under GST. The Empowered Committee of the State Finance Ministers are supposed to meet in October to discuss it further. Itís time we realise the urgency of reforms and of adopting GST, not only for its simplicity but also keeping in mind the socio-economic objectives; we have to think beyond mere political interest.

By:- Akram Hoque

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