Goods and Services Tax (GST) - A step forward

1.What is the concept of GST?

Goods and Services Tax (GST) is a part of the proposed tax reforms that centre round evolving an efficient and harmonized consumption tax system in the country. The goods and service tax (GST) is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at a national level.

CAG Mr. Vinod Rai in his inaugural address to the National Conference on GST put forth the concept as "An integrated scheme of taxation that does not discriminate between goods and services and is a part of the proposed tax reforms that centre on evolving an efficient and harmonized consumption tax system in the country."

According to the First Discussion Paper on Goods and Services Tax in India by the Empowered Committee of State Finance Ministers dated Nov. 10th, 2009 , the five key features of the proposed plan of the Goods and Services Tax for the Indian economy, approved by the Government of India and Empowered Committee of State Finance Ministers comprises :

> Two components: one levied by the Centre (hereinafter referred to as Central GST), and the other levied by the States (hereinafter referred to as State GST) ,rates for which would be prescribed appropriately, reflecting revenue considerations and acceptability.

> The Central GST and the State GST would be applicable to all transactions of goods and services made for a consideration except the exempted goods and services, goods which are outside the purview of GST

> The Empowered Committee has decided to adopt a two-rate structure -a lower rate for necessary items and goods of basic importance and a standard rate for goods in general. There will also be a special rate for precious metals and a list of exempted items

> The GST will be levied on import of goods and services into the country

> The administration of the Central GST to the Centre and for State GST to the States would be given. This would imply a reduction in unhealthy competition among the centre and the states over tax revenue that was prevalent earlier and an increase in harmonious functioning between them.

2.What are the key problems in the current taxation system for goods and services in India that the proposed GST plans to improve upon?

The key problems in the current taxation system in India can be categorized into:

Taxation at Manufacturing Level i.e. CENVAT is levied on goods manufactured or produced in India which gives rise to definitional issues as to what constitutes manufacturing, and valuation issues for determining the value on which the tax is to be levied which through judicial proceedings has been observed to be a severe impediment to an efficient and neutral application of tax

Exclusion of Services from state taxation has posed difficulties in taxation of goods supplied as part of a composite works contract involving a supply of both goods and services, and under leasing contracts, which entail a transfer of the right to use goods without any transfer of their ownership. Though these problems have been addressed by amending the Constitution to bring such transactions within the purview of the State taxation, services per se remain outside the scope of state taxation powers.