FEBRUARY 22, 2010

Budget 2010: Make it a prelude to GST roll out in 2011

By Santosh Hatwar

BUDGET 2010 would have been historical if the powers that be had kept their date with the GST roll out from April 1, 2010. The wise men in the Empowered Committee of State Finance Ministers and the Finance Ministry were probably not on the same wave length resulting in a deferment of the GST roll out.

The Empowered Committee came out with its first discussion paper in November, 2009 which didn't excite much and the Thirteenth Finance Commission's task force on GST submitted its report in December, 2009. However, the Finance Minister announced in January, 2010 that GST related legislations are seven to eight months away and cannot be expected in this Budget. That leaves a full fledged GST roll out tentatively from April 1, 2011 probably with its cousin the DTC.

But the electronic media is trying its level best to shore up its TRPs by attempting to sell a dud Budget to its viewers – without a GST roll out, it is a foregone conclusion that Budget 2010 would be nothing but a damp squib. All the media hype surrounding this annual jamboree from the Finance Ministry will be just that – all hype and no stuff. So is there anything that we can really expect from this Budget?

The coalition in power has no major election to win and no vote bank to please as of now. The economy has definitely shown signs of recovery with a record 18% growth in manufacturing sector in December, 2009 and corresponding positive growths in mining and electricity sectors. Now is that an incentive for the Government to tinker with the stimulus policy? Does this mean the Government will pull the stimulus plug in this Budget?

While we can keep our fingers crossed on this one, the Finance Ministry can explore some real opportunities in this Budget, which is actually a prelude to a probable GST roll out in Fiscal Year 2011-12.

Some suggestions which will help in synchronisation of the current indirect tax regime with forth coming GST regime:

Exemptions:

The first and foremost task for the Government is to rationalize and simplify the tax structure and provide an efficient and assessee friendly tax administration with zero red tape. To fully implement the GST regime successfully in fiscal year 2011-12, the Central Government should first do away with all the current exemptions plaguing indirect tax regime, because customs, excise, service tax and VAT are all indirect tax levies and any exemption at any stage for any manufacturer or trader or service provider will act as stumbling blocks for continuity in chain of tax credits.

Tax Structure:

For benefiting small scale manufacturers, traders and service providers, the threshold limits recommended by the GST task force of Thirteenth Finance Commission should be adhered to (please refer to paragraphs 2.63, 2.64, 2.66 and 2.67 of the report of GST task force) and should be implemented from this Budget itself. Further, the excise duty rates for the manufacturers should be fixed at 7% (a slight variation from the proposition of the task force) and the tax rate for the service providers should also be brought down to 7% from the prevailing 12%.

The Finance Minister should be bold enough to begin his GST journey in this Budget itself by subsuming all the central taxes that will anyway be subsumed if CGST were to be in place in the GST regime. He should take up the task of doing away all the surcharges, cesses, CVD, additional duties of excise etc. This will also pave the way for the State Governments to follow suit when they come up with their Budget presentations for the next fiscal year.

Also, all the duties and taxes paid on inputs/input services/capital goods including duties paid on goods like HSD, Motor spirit and goods exclusively used in offices should be allowed as input credit which will minimize litigation in this field.

Further, the assessment mechanism should be aligned with the current system prevailing in the VAT regime, as in all probability, this could be the basis in the proposed GST regime. This would be a radical step, but nevertheless help integrate the administrations at Central and State level and keep them at the same wavelength for the forthcoming GST regime.

Other suggestions:

++ A specific law may be enacted to nationalize all the assets held illegally by Indian Nationals in tax havens without any permission from the Reserve Bank of India . The proposed law should create a deeming fiction ousting the rights of Indian Nationals over such illegal assets held in tax havens and transfer the ownership rights to the Government of India. This law should be incorporated in the Ninth Schedule of the Constitution in terms of Article 31B of the Constitution to keep it out of the purview of judicial scrutiny. Thereafter the Government should initiate the process of bringing in the illegal assets into India and utilize those assets for Nation building. This will also seriously test the Government's commitment to eradicate corruption.

++ All urban areas with a population of One Million should become self reliant in power generation and distribution by installation of power plants which will exclusively cater to these urban areas. The Government should initiate this massive electrification project under the Jawaharlal National Urban Renewal Mission.

++ Similarly, all the urban areas situated along our coastline should draw their water requirements by sea water conversion. To achieve this, desalination plants should be set up at strategic locations which can also cater to select large urban areas in the hinterland.

++ The Government should fix a definite time frame for installation of these power and drinking water projects, preferably three years. It should learn from the inordinate delay in implementation of the Chennai Desalination plant which was first announced in Budget 2004.

++ The Government should build speciality general hospitals with thousand bed capacity with a medical college attached, in all district headquarters of the Country and AIIMS type hospitals in all State Capitals by formulating a National Urban Health Mission which will complement the existing National Rural Health Mission projects.