One of of India’s biggest tax reform initiatives—Goods and Services Tax (GST)—has entered the final leg with finance minister Arun Jaitley stating that a solution to the issues relating to the comprehensive indirect tax regime may be finalised in the current year itself.
If adopted, GST can dramatically alter tax administration by giving a one-shot solution to a welter of levies such as excise, value added tax and octroi and stitch together a common market.
Under the system, the Centre and states will tax goods and services in identical rates. For instance, if 20% is the agreed rate on a certain good, the Centre and states will collect 10% each.
The government had introduced a Constitution Amendment Bill in 2011 in the Lok Sabha to enable GST’s roll-out. A new government and Lok Sabha will have to re-start work on the tax reform.
“I do hope we are able to bring a final solution in the course of this year and approve the legislative scheme which enables introduction of GST. This would streamline tax administration and avoid harassment of business and result in higher tax collection both for Centre and states,” he said while presenting the Union Budget.
The debate on whether to introduce GST must come to an end now, Jaitley said, adding, “we have discussed the issue for many years. Some states have been apprehensive about surrendering tax jurisdiction others want to be adequately compensated”. He assured all states that Centre would be fair.
GST is India’s most ambitious indirect tax reform plan, which aims to stitch together a common market by dismantling fiscal barriers between states. It is a single national uniform tax levied across India on all goods and services.
The indirect tax system in India is currently mired in multi-layered taxes levied by the Centre and state governments at different stages of the supply chain such as excise duty, octroi, central sales tax, value added tax and octroi tax among others. In GST, these will be subsumed under a single regime.
In addition to the passage of the Constitution Amendment Bill by the Parliament and state Assemblies, it is also imperative to have a robust country-wide information technology (IT) network and infrastructure to make the implementation seamless across state boundaries.
The IT network is still work in progress. The most important issue on which consensus eludes states and the Centre is regarding the states.