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Centre prepares for 'Flawed GST' with dual rates; All efforts to realise April 1, 2011 deadline

TIOL - COB(WEB) - 193
JUNE 24, 2010

By Shailendra Kumar, Editor

THE DTC and the GST are literally the two wheels of the fiscal reforms 'chariot' the Finance Minister, Mr Pranab Mukherjee, has been riding on with fluctuating indices of success. It is true that one of the wheels - the DTC - may appear to be surging ahead of the other, but it certainly does not mean that the other wheel has been significantly lagging behind. Mr Mukherjee stands fully convinced that if he manages to pull the GST-cart successfully, it is not only his Revenue deficit which would be wiped off but even the fiscal deficit would be begging for oxygen cylinders to survive for some more years. 50 lakh is going to be the assessee-base, and the GST rate would be somewhere between 16 to 18 per cent.

TIOL has already reported in this column that so far as exemption threshold limit is concerned the Centre has already firmed up its mind for Rs 10 lakh limit recommended by the Empowered Committee. Thus, one major breakthrough has been achieved. For the SSI sector, the Centre has also made up its mind for the Composition Scheme upto Rs one Crore. And to nip the dissention in the bud, the administration of this scheme would be handed over to the States which can also keep the revenue generated from this sector.

The second milestone which may be officially announced at the appropriate time, is going to be the Centre's acceptance of the 'Flawed GST' in contrast to what the Finance Commission had recommended - a Flawless GST! Why flawed? Given the fact that there are about 99 exemption notifications issued by the States and about 333 notifications issued by the Centre, it has come to be accepted that it would politically be impossible to discard all of them in one go. At best these exemptions would be trimmed to a politically manageable level. Apart from the political reason, it also makes economic sense that no commodity should be suddenly subjected to a hight duty rate if there is going to be a single GST rate. Thus, the space in between the zero and the final duty rate calls for a consensus on the second rate. And that is why the Centre has decided to go for not only the dual GST but also dual GST rates.

What makes it further a flawed GST is the acceptance of the Centre to keep certain goods of strategic importance outside its purview. Some of these are petrol, diesel, natural gas, liquor, electricity and also supply of electricity which attracts service tax today. Although it is not a good news for the industry and trade as credit would not be available for the same but this is perhaps the only option the Finance Minister has to pull the GST-cart out of the political quicksand.

If one goes by the past 15 days tour programme of the Finance Minister it may appear that the FM has been actively campaigning for the larger cause of GST. Mr Mukherjee who had visited Patna to address the Chief Ministers and FMs of Eastern & North-Eastern States, did broach the GST issues and also promised attractive compensation package. He then addressed the CBEC Chief Commissioners' conference where he again talked about the GST and the same day, flew to Ahmedabad where he met Gujarat CM and FM and discussed about the areas of discord relating to GST. The FM then went to Kolkata where he talked about GST and came back to Delhi only to hold high-level meeting with his own officials on a Sunday afternoon where several decisions were taken to crystallise the stand of the Central Government on various components of the new regime.

So far as the purchase tax is concerned, the FM is confident of bringing the four opposing States of Punjab, Haryana, AP and MP, on a common platform. It is true that the purchase tax on agricultural produce accounts for about 20 per cent of their revenue collections but it has to be subsumed to minimise the flawed elements in the new regime. The Centre has agreed to compensate these States if they allow it to be subsumed by the GST.

Next comes the Constitutional Amendment to incorporate the Fourth List which would allow both the Centre and the States to levy GST. The Ministry of Law has prepared the first draft but North Block has found too many gaping holes in the same, and the second round of fine-tuning has just begun. An effort is on to finalise and introduce the same in the Parliament during the Monsoon Session so that the relevant bill could be endorsed by at least two-thirds of State Assemblies.

And finally comes the much-needed but least talked about IT infrastructure which alone can guarantee implementation and success of the GST. The TAGUP, headed by Mr Nandan Nilekani, is all set to hold its first formal meeting coming Monday. Although the CBEC is as usual excessively optimistic to put it in place before April 1, 2011, Mr Nilekani, being a practical IT wizard, knows that the size of the task is too overwhelming, and a lot of homework needs to be done to match the challenge. In fact, credit goes to CBEC Chairman Mr V Sridhar who, on the second day of the CCs' conference, did some plain talking and asked the officers that the business as usual will not do if India has to switchover to GST and if CBEC is going to be the nodal agency for the same. He asked his departmental officers to gear up technologically, administratively and also conceptually, to implement the new system. Let's hope Mr Sridhar's words are carried by the DG System and the Chief Commissioners to their respective zones where the same filters down to other officers who would be eventually interacting with GST assessees. Let's also hope that the CBEC's Directorate of System honestly assesses its capability and then does not hesitate to seek external help of quality IT brains to make it a success for efficient IT infrastructure. Let's wish the Finance Minister good luck for realising his dream and helping Indian economy to cut costs and expand its commercial domain across the globe.