news round up - Taxmann

2010] GST-2010 - THE SINGLE RATE GST STRUCTURE - IS IT VIABLE ? 127
luxuries are taxed at higher rate. The rate of tax is 4 per cent and 12.5 per
cent in general and - the food grains, oil seeds, iron and steel, coal, cotton,
etc., are taxed at 4 per cent. Further, the list of 4 per cent taxability included
the minerals and most of the industrial inputs including machinery and
their spares and this system is working very well. The goods which are not
included in the list of 4 per cent (and further not in special list of exemption
or 1 per cent taxability) are taxed at 12.5 per cent. The general rate of 12.5
per cent was recommended by the white paper issued by the Empowered
Committee of States’ Finance Ministers on VAT but later some of the
States violated it by making it 14 per cent.
While advocating the single rate system, some of the facts considered are
administrative convenience and the better collection of tax in comparison
to multiple tax rate system but some of the facts have not been taken into
account while discussing and recommending the single rate system and
these are very vital and will go to the root of basic viability of the single rate
system in the ‘dual GST’ format. Some of the goods are not subject to any
Central indirect taxation due to the fact that Central excise is not payable
on these goods but since we are going for dual taxation system ‘CGST’ will
be applicable on them also unless specific exemption is provided and more
the exemptions will be provided more it will distort the basic system of
taxation.
Take the example of food grains which are at present taxable at the rate
of 4 per cent. When these goods are sent from one State to another State,
the effective rate is only 2 per cent CST and VAT paid within the State is
eligible for set off if the goods are sole inter-State. No Central excise duty
is payable on food grains and if the exemption is given to these goods on
this account, even then the rate of tax under SGST (as suggested single
rate) will be 7 per cent and if no exemption is given under CGST, then the
rate will 12 per cent (7 per cent SGST and 5 per cent CGST) and this will
increase the rate of tax to manifold as compared to the existing rate. Note
that the States still do not agree to this rate of 12 per cent and advocating
for the rate of 15 per cent. This is applicable to all the goods which are
subject to lower rate and further not covered by the Central excise.
Introducing the new taxation system in a big country like India is not a
theoretical exercise and tax system cannot be modified to that extent only
for the sake of administrative convenience and increase in the revenue
without knowing and discussing the basics of the requirement of tax
paying public including the trade and industry.
The multiple rate system will certainly distort the administrative set up of
the GST but the lawmakers are not giving us the ‘standard National GST’
and dual GST is only a compromise even without asking the trade and
industry which was waiting for the Single national GST as promised to
them in 2006 by our lawmakers. If there is a compromise on the basics of
GST, then we will receive the more complicated and complex indirect tax
GOODS & SERVICES TAX CASES ❑ JANUARY 20 - FEBRUARY 4, 2010 ◆ 37