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The Goods and Services Tax (GST) regime is facing challenges on three fronts, said Parthasarathi Shome, former Chairman, Tax Administrative Reforms Commission.
These are tax evasion, States’ demand for a band of rates and exclusion of big-ticket items such as petroleum, he said, speaking at a colloquium here on the ‘Role of taxation, tax administration and GST’, organised by the Taxes Department, Kerala, in association with Kinfra.
Bottomline question “Perhaps it is worth trying the experiment for a year or two and then decide whether the bottomline question is answered at all. “And that bottomline question is: have business and investment decisions become more seamless than during the regime of VAT, Cenvat and service tax?
“I will not say today without real experience that we will be worse off. I will not say that we will definitely be better off. And therefore perhaps we are at a little bit of risk here.”
The GST implementation part should be simpler. Because there is no constraint on improving it – be it the forms to be filled and refunds.
There is going to be an appropriate input tax credit for inter-State trade, which is called IGST. This is a complex system of registering input tax paid in one State and transferred to another.
Computerised system A computerised system being maintained by the Centre is likely to take care of this. The Centre will operate as a clearing house. A band of rates is not a good idea because then businesses will have to deal with many rates. Maybe the States will converge on a few rates. But there is no compulsion on them.
“We must require them to operate on a few rates. I hope policymakers will be able to reduce and agree on a much reduced number of rates.”
Another challenge is that goods like petroleum are likely to be kept out of the tax base, meaning that no input tax credit will be given.
“What it means basically is that the exporting State will keep the money to itself. It will have a cascading effect and we will not move fully into a consumption-based tax system since the revenue is not coming to the importing State.”
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