Saturday, June 20, 2009


Goods & Services tax is proposed to phase out Central Sales Tax by April 2010 and Indian states and political parties have reached fair amount of consensus on the issues related to the new tax regime.However careful analysis reveals that the route to the new tax regime may not be an easy one.
Firstly, all the states understand that they will gain from the new tax structures and there remains not much ideological problems with its implementation.But the problem is, none of the states will continue to be that much enthusiastic if they suffer revenue losses while phasing out the CST.The empowered committee of the state finance ministers has suggested that the states should be compensated for five years for the revenue losses incurred.However,they are apprehensive about the possibility of full scale compensation because of their claimed bitter experience in this regard earlier.Therefore it is essential to prepare a comprehensive policy for the compensation of the states for the revenue losses, taking into account past experiences.
Moreover, the states are also apprehensive about encroachment upon their fiscal autonomy, i.e, their power to levy taxes.However, the apprehension can be assuaged with the fact that the states will now have the power to levy service taxes hitherto a monopoly of the Central Government.
Under-preparedness of the administrative machinery and the juvenile IT structure might pose a threat to the successful implementation of the new tax structure.The state tax collecting officials who have so far collected only tax on goods will now be given the responsibility to collect taxes on services as well and for that they need thorough training which may take some time.This problem can be sorted out if the Center continues to collect taxes on behalf of the states and give the revenue to the states for the initial 2-3 years till the time the state officials are thoroughly trained.The Tax information exchange system has to scaled up with better IT facilities and educated IT professionals thoroughly educated on the tax structure of the country. The format of the challans for tax payment need to be redesigned and the government may need to allot new unique number under the GST system for better administration of the tax.
Problems are plenty and time is limited.The time frame given for the implementation of the GST is nearing the deadline.It is therefore suggested to delay the process a bit so that both the center and the states have enough time to get accustomed to the new tax structures.A little delay is always better than a premature roll out.

1 comment:

  1. Hi saptasrhi,

    Could you pls explain more on GST.I couldn't catch the idea of gst.Like percentage share of central and state government? what about the exiting tax system.Pls reply on this.Thanks