Contentious administrative and conceptual issues among states continue to haunt the country’s most ambitious tax reform initiative—a nationwide goods and services tax (GST)—as stakeholders struggle to hammer out a mutually acceptable model to meet the deadline of enforcing the regime by April 1, 2010.
At least two states—Madhya Pradesh and Gujarat—have categorically stated that the new regime cannot be rolled out from that date before some key issues are sorted out.
“State governments would be reduced to mere grant-in-aid receiving institutions ( after GST comes into force),” said Raghavji, finance minister of Madhya Pradesh, told a meeting of state finance ministers on the issue in which Finance Minister Pranab Mukherjee was also present.
The proposed framework, a draft of which was released in a discussion paper on Tuesday, is aimed at removing distortions in the indirect tax regime mired in a web of levies such as excise duty, value added tax and service tax, besides surcharges and cess payments.
The Gujarat government says the information technology (IT) and administrative infrastructure to roll out the GST is not ready to make it happen by deadline.
“It is clear that the time available is not adequate and time frame needs to be recast,” Saurabhbhai Patel said.
There is also the contentious issue of “purchase tax” that is charged by granary states such as Punjab and Haryana on the purchase of grains for the central government pool. Punjab collects as much as Rs 1,000 crore annually from purchase tax.
“Subsuming purchase tax within the GST would result in a substantial loss of revenue for us,” Punjab finance minister Manpreet Badal said.
“Although the April 1, 2010 deadline looks ambitious, a well-executed GST can add at least up to two per cent to the country’s GDP,” said Satya Poddar, Partner at accounting firm Ernst & Young.
Indirect tax collection slips
The tax breaks to help industry combat the global economic downturn has cost the government dear. Indirect tax collections fell by more than 21 per cent to Rs 1.26 lakh crore in the first seven months of this fiscal, against Rs 1.61 lakh crore a year ago. All three indirect taxes — excise, customs and service tax — have posted negative growth. Customs declined the most, by 31.8 per cent at Rs 45,412 crore. Excise contracted by 18.8 per cent at Rs 52,566 crore, and service tax by 5.4 per cent at Rs 28.926 crore.