18 Dec 2009
A harmonized 'Goods and Service Tax' is a topic very close to our hearts in as much as it has the potential to change the landscape of the country by increasing the potential purchasing power of the masses and reducing the burden on the economy in terms of the cascading effect of taxation, these being just few of the good reasons for its introduction. Therefore we thought it fit to run a GST resource post on the blog to cover the dimensions of both the curious as well the informed. In as much as it would also mark a new era in India on simplification of taxes, it is more than welcome. [Click here to read more on tax simplification]
The process started in 2007 the then Finance Minister Mr. P. Chidambaram went a step ahead than that suggested by the Kelkar Committee (Task Force on Indirect Taxes) and made clear the intent of the Government to adopt a harmonized system of taxation of commodities by transforming the hitherto operational regime wherein sales tax (or VAT) was charged and levied by the State Governments and tax on services being levied by the Central Government. [Click here to see our SSRN paper giving detailed backgrounder on history of indirect taxes in India and also the process leading to the current state of affairs leading to the present state-of-affairs]
It was in this perspective that First Discussion Paper on Goods and Service Tax was released by the Finance Minister along with the Chairman of the Empowered Committee of State Finance Ministers which is responsible for giving thrust and a reality to this dream. The First Draft enunciated the principles on which the proposed law would be framed. It further delineated various other silent features of the envisaged model. [Click here to have a look at the First Discussion Paper]
And now we bring to you the latest releases in this front by the Finance Commission. The National Council of Applied Economic Research has released its report, Moving to Goods and Service Tax in India: Impact on India's Growth and International Trade. In this report the Council has sought to analyze "the impact of introducing comprehensive goods and services tax (GST) on economic growth and international trade; changes in rewards to the factors of production; and output, prices, capital, employment, efficiency and international trade at the sectoral level" to conclude that the "implementation of a comprehensive GST in India is expected to lead to efficient allocation of factors of production thus leading to gains in GDP and exports. This would translate into enhanced economic welfare and returns to the factors of production, viz. land, labour and capital." [Click here to access the NCAER Report on GST and linkage with International Trade]
Also coming from the Finance Commission is the Report of the Task Force on Goods and Service Tax. This comprehensive report takes into account almost all sectors comprising the economy and covers all aspects right from introduction till the last phase of administration, compliance, control etc. It lists out the quintessential factors for the successful working of the proposed system and the various issues which need to be provided for to maintain a congenial and competitive run in the economy. The Report, it is our belief, can very well be considered as a starting point for a through academic and practical exercise for the policy-makers as well as the administration. [Click here to access the Report of the Task Force]
Given the vivacious speed with which work is being carried out in this regard, we only look forward to bring more to our readers on this topic lying at the core of a stable and progressive economy.