Sparks seem to be flying over the proposed goods and services tax (GST) with the Centre and the states differing over the model for the tax. The Centre has asked the empowered committee of state finance ministers to reconsider its proposal to levy a GST with multiple rates for goods and services. It is instead pushing for the original plan of merging excise duty, service tax and state levies into a single tax.
With a little less than a year and a half to go for the planned introduction of the tax from April 1, 2010 , discussions are now in full swing. The Centre has sent its response to the empowered committee (EC) on the matter and has asked it to review the proposal. “We have sought additional inputs as well from states and then will discuss the issue with them,” a finance ministry official said. While the EC, which was given the responsibility to prepare a roadmap for the introduction of GST, had also called for subsuming all taxes into one, it has suggested different rates for goods and services at the Centre and state levels.
Accordingly, at the Centre, there would be a tax for goods, levied at two or more rates and a separate tax for services. A similar system of taxes would be put in place for states as well. North Block however is not too keen on this model as it will be difficult to administer. The model would also be almost identical to the current system of excise duty and service tax.
“It would in fact complicate matters more and would not at all serve the purpose of introducing GST,” the official pointed out. It wants a unified tax structure with a single tax rate- as is followed internationally. Other moot points have also arisen between the Centre and the states on the proposed tax system. The Union finance ministry wants to include all state level duties in the GST, but the proposal has been opposed by states who have recommended that most of them should be kept outside the purview of the proposed tax. States also want a share in levies on inter state services such as telecom and financial services that contribute nearly 80% of the service tax revenue. But the Union finance ministry is of the view that this could lead to inter state disputes and higher evasion. Officials said there are also issues on tax collection that need to be sorted out.