One of the biggest Tax reforms, Central Goods and Services Tax, has been about in this country for years now.
The UPA had introduced a Bill regarding the same in 2008 and was hoping to implement it by 2011. However because of series of roadblocks which it faced, mainly from state governments like MP, Gujarat, Chattisgarh among others, the bill had been stuck.
It requires a constitutional amendment.
The GST would subsume many state and the central taxes like central excise duty, service tax and additional custom duties, VAT, entertainment tax among others.
However, according to the agreement reached between the Centre and the States, petroleum products will be kept out of the purview of the GST.
Initially the debate about this was started in 2000.
Current breakthrough is attributed mainly to the three factors:
- The flexibility shown by the Finance Minister in terms of completely taking care of states’ concerns of loss of revenues.
- Interim measure allowing Petroleum products to keep out of the purview of the GST.
- In terms of staggered approach which had been articulated.
It is being said that this is expected to add 2% increase to the GDP.
The implementation issues are enormous.
It is difficult to put in place this bill by 2016.
By implementing GST the cascading effect of taxes will be removed. The whole country will have a uniform tax system. States can now charge service tax.
Capacity building processes required for implementation have not received much attention.
There may be inflationary impact on services.
The tax base is likely to be enhanced.