GST – The Agenda is Vast - Dr. Vijay Kelkar, Chairman Thirteenth Finance Commission
Dr. Vijay Kelkar, Chairman Thirteenth Finance Commission, addressing the ASSOCHAM 3rd National Conference on “GST for Accelerated Economic Growth and Competitiveness”, organized in Delhi yesterday, said:-
Merits of GST:
(i) It will bring about a phase change on the tax firmament by redistributing the burden of taxation equitably between manufacturing and services.
(ii) It will lower the tax rate by broadening the tax base and minimizing exemptions.
(iii) It will reduce distortions by completely switching to the destination principle.
(iv) It will foster a common market across the country and reduce compliance costs.
(v) It can provide a fiscal base for local bodies to enable them to fulfill their obligations.
(vi) It will facilitate investment decisions being made on purely economic concerns, independent of tax considerations.
(vii) It will promote exports.
(viii) GST will also promote employment.
(ix) Perhaps, most importantly, it will spur growth.
A “Flawless” GST
Ideally the GST would subsume all the major State Level taxes, use a single rate, allow for only essential exemptions and eliminate all barriers to trade. This flawless GST will feature the following characteristics.
Harmonisation
Not only the law but also the methodology relating to levy, assessment, collection and appropriation of the GST should be similar across States and the centre. Such a unified approach will simplify procedures, eliminate bottlenecks and drastically reduce transaction costs for dealers, enabling them to leverage cost and time gains from the new taxation system.
Common Procedure- levy, assessment, collection, appropriation
For industry to reduce its transaction and compliance costs, it is necessary that apart from a common law, the implementation of the law be also similar across States. All stages of the taxation chain from the levy of the tax to its assessment collection and appropriation should be similar. This would involve similar rules across States dealing not only with assessments, audit, refunds but also more basic issues like registration, filing of returns, treatment of transportation of goods etc. A common dispute resolution mechanism as well as a mechanism for giving advance rulings would further facilitate trade and industry. Here too, associations can play a very useful role by providing advice and suggestions on the modalities to be followed.
Expanding the envelope
A possible step to expand the GST tax base will be the inclusion of the rail sector. This will be necessary if a level playing field is to be provided to the road and air transportation sectors which will be subject to this tax. This inclusion will also ensure that all interstate transportation of goods can be tracked through the proposed IT network. The railways themselves will benefit from this by availing input tax credit on the significant purchases made by them.
Benefits to State Government
A few State governments have recently indicated their opposition to the implementation of GST at the present juncture. While their objections need to be carefully examined, it must also be recognized that while implementation of the GST is aimed at being revenue neutral to the States, it will be budget positive for the government. This is because governments are large purchasers in the market for their own consumption and their cost of procurement will come down significantly with the implementation of GST. Apart from these static benefits, dynamic benefits will be generated in the medium term through more economically efficient production, improved competition and more importantly greater employment.
Role of the Finance Commission
It is possible that some States may want assurances that existing revenues will be protected when they implement GST. The Commission is willing to consider providing for compensation in order to advance the implementation of a “flawless” GST.