GST-Greater Simplicity in Taxes

The prevailing tax structure in India on the goods manufactured is complex. The design of the CENVAT and state VATs was undelrined by constraints of the Constitution, which allows neither the state nor the centre to levy taxes on a comprehensive base of all goods and services and at all points in the supply chain. The centre is constrained from levying taxes on goods beyond the point of manufacturing and the states in extending the taxes to services. This dividion of tax powers make both the CENVAT and state VAT partial in nature and contributes to their inefficiency and complexity. Further complexities involve, disputes and court challenges, the process of dispute resolution is slow and expensive; systems suffer from compliance gaps; the most starking complexity is the policy related and is due to the existence of exemptions and multiple rates and irrational structure of the levies.

For CENVAT, the starting base is narrow and is further eroded by a gamut of area-specific and conditional and unconditional exemptions. While the problem with service tax is the basic approach of levying it on specific services, where the argument of including it in the base wages on. The state VAT has the distivct problem of classifying goods to different tax schedules (the lowest rates are on precious metals, which is preposterous; whereas the rates on necessities is higher)

Looking into the problems mentioned above (which are just a few significant excerpts from many more matters), the Indian tax practioners believed that implementation of a national goods and services tax would simplify the system. The tax will operate with dual state and central rates applying to all transactions involving supply of goods and services.

The rates will be different for necessities, general items and special provision for exempted items.Since the Central GST and State GST are to be treated separately, taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST. A taxpayer or exporter would have to maintain separate details in books of account for utilization or refund of credit. Further, the rules for taking and utilization of credit for the Central GST and the State GST would be aligned.

The following Central Taxes should be subsumed under the Goods and Services Tax:

(i) Central Excise Duty
(ii) Additional Excise Duties
(iii) The Excise Duty levied under the Medicinal and Toiletries Preparation Act
(iv) Service Tax
(v) Additional Customs Duty, commonly known as Countervailing Duty (CVD)
(vi) Special Additional Duty of Customs – 4% (SAD)
(vii) Surcharges, and
(viii) Cesses.

The following State taxes and levies would be subsumed under GST:
(i) VAT / Sales tax
(ii) Entertainment tax (unless it is levied by the local bodies).
(iii) Luxury tax
(iv) Taxes on lottery, betting and gambling.
(v) State Cesses and Surcharges in so far as they relate to supply of goods and services.
(vi) Entry tax not in lieu of Octroi.

Should the taxpayers welcome this implementation of the GST-will it improve operating costs especially in the manufacturing or is it just another hoax !
I believe yes, as there are many different taxes involves in the industry and the tax system seems highly artificial. Clubbing it together to form a uniform tax structure across the nation will helo reduce tax cascading to a great extent.
 
The implementation date on the white paper is April 1, 2010