We have a deadline of April 2010 for GST (goods & services tax), a deadline first promised in budget for 2007-08. On November 10, Empowered Committee of State Finance Ministers released the first discussion paper on GST.? That is a bit late in the day, if the deadline of April 2010 is serious.? FM has said states like Madhya Pradesh, Gujarat and Haryana want a delayed introduction of GST and there are several other reasons why GST from April 2010 is unlikely, if GST is interpreted as meaning complete harmonisation, unification and standardisation, with elimination of all other indirect taxes.

Here is a quote from the discussion paper. ?Despite this success with VAT, there are still certain shortcomings in the structure of VAT both at the Central and at the state level. The shortcoming in Cenvat of the Government of India lies in non-inclusion of several Central taxes in the overall framework of Cenvat, such as additional customs duty, surcharges, etc, and thus keeping the benefits of comprehensive input tax and service tax set-off out of reach of manufacturers/dealers. Moreover, no step has yet been taken to capture the value-added chain in the distribution trade below the manufacturing level in the existing scheme of Cenvat. In the existing state-level VAT structure, there are certain shortcomings that are as follows. There are, for instance, even now, several taxes which are in the nature of indirect tax on goods and services, such as luxury tax, entertainment tax, etc, and yet not subsumed in the VAT. Moreover, in the present State-level VAT scheme, Cenvat load on the goods remains included in the value of goods to be taxed under State VAT, and contributing to that extent a cascading effect on account of Cenvat element. This Cenvat load needs to be removed.?

Fair enough. And we already have two problems.?First, will Cenvat be modified??Second, have states agreed that indirect taxes like purchase tax (important for food-grain producing states like Punjab and Haryana), entertainment tax, luxury tax, electricity tax and octroi (important for Maharashtra) will be removed??If any of these are retained, we don?t quite have a GST.?Third, CST (Central Sales Tax) has to go and states will complain about revenue losses, over and above general arguments about revenue losses. The model proposed in the discussion paper has a dual GST. ?The GST shall have two components: one levied by the Centre (hereinafter referred to as Central GST), and the other levied by the states (hereinafter referred to as State GST). Rates for Central GST and State GST would be prescribed appropriately, reflecting revenue considerations and acceptability. The Central GST and the State GST would be applicable to all transactions of goods & services made for a consideration except the exempted goods & services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits.??This illustrates more problems with GST. Fourth, will exempted categories be the same across states? Fifth, will State GST rates be identical across states??Sixth, will thresholds be the same across states? The discussion paper states that purchase taxes, alcohol, petroleum and natural gas will be outside the purview of GST.

Seventh, we need Constitutional amendments (supported by two-thirds of the states) to allow states to tax services and the Centre to tax beyond manufacturing.?Those amendments are unlikely overnight.?Eighth, the IT backbone is missing in many states and even if the Centre meets part of costs (say 75%), that?s not going to happen immediately. The discussion paper states that this will be ready by January 2010.?However, reasons for this optimism aren?t clear. Ninth, there is still lack of clarity about some aspects of inter-state sales (stock transfers, inter-unit transfers, inter-office services) and even on whether services will have an all-India or state-level registration.?To quote from the discussion paper: ?Prior to the introduction of VAT in the Centre and in the states, there was a burden of multiple taxation in the pre-existing Central excise duty and the State sales tax systems. This was causing a burden of multiple taxation (that is, ?tax on tax?) with a cascading effect. Moreover, in the sales tax structure, when there was also a system of multi-point sales taxation at subsequent levels of distributive trade, then along with input tax load, burden of sales tax paid on purchase at each level was also added, thus aggravating the cascading effect further?there was also no harmony in the rates of sales tax on different commodities among the states.? That?s true.?We want a reformed indirect tax structure, as in the ideal GST. Will we have that ideal GST and will we have it from April 2010? Based on VAT experience and the discussion paper, the answer to both questions seems to be ?no?.

The author is a noted economist