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GST to Dismantle Complexities: FM
15 December, 2010 New Delhi :
GST to Dismantle Complexities: FM

The text of Finance Minister's speech at a recent Seminar on GST :

"I am happy to be here at the inauguration of the Seminar on the Goods and Service Tax (GST). Let me start by congratulating the Comptroller and Auditor General of India for taking this timely initiative for bringing together the various stakeholders to deliberate on this issue when India's tax structure and its legal framework is being reviewed and is in the process of being finalized. I understand that the seminar seeks to focus on transition issues that would have to be addressed by tax administrators, both at the Centre and at the State levels, as they set out to implement the GST in due course. I am glad that this discussion is going to benefit from the participation of the auditors, who in turn will have some watchdog responsibility of seeing the implementation of the agreed tax reforms.

The issue of the tax reforms was at the heart of the process of economic reforms and liberalization that the country embarked on in the early 1990s. We have come a long way since then. The tax reforms though gradual have been systemic in scope, particularly when you consider the proposals currently awaiting implementation. The reforms have covered both the direct taxes as well as the indirect taxes. The proposed Direct Taxes Code (DTC) brings together the policy initiatives on the direct taxes. In the field of indirect taxes, the MODVAT in 1986 provided a scheme for allowing relief to final manufacturers on the excise duty borne by their suppliers in respect of goods manufactured by them. It was followed by the CENVAT scheme. The VAT came into force in April 2005. The VAT was a major tax reform as it enabled rationalization of tax rates, reduced- to some extent- the compulsions for tax rate war among States and also moderated the cascading effect of taxes on commodities. More importantly, VAT was an effort at improving tax payer friendliness with greater faith being reposed in the tax payer. The implementation of VAT brought a steady increase in the revenues of the States.

We are now hoping to take the next step by moving towards an economy-wide generalized system of goods and service taxes. From the current mixed system of taxation, both at the Centre and States, we are moving towards value added tax principle with input tax credit mechanism for taxation of goods and services. The proposed GST is a natural step towards further consolidation of taxes on goods and services to achieve a genuine value added tax system at all levels in the country. GST is likely to improve tax collections and boost India's economic development by integrating the Indian market through a uniform tax rate. As I have said earlier, it is a win-win situation for all stakeholders.

These reforms have been necessitated by the changing nature and the rapid growth of our economy. Indeed, the Government is committed to improve the efficiency and equity of the tax system, by eliminating distortions in the tax structure, introducing moderate levels of taxation, expanding the taxable base, promoting efficiency and equity while enhancing revenues and simplifying the language of the taxation provisions. The measures being considered in respect of the DTC as well as the GST will create for India a modern and more efficient tax system in the very near future. However, implementation of some of these measures is not going to be an easy process. That brings me to the theme of this seminar.

I was happy to see the study carried out by Comptroller and Auditor General on the "Implementation of VAT in India- lessons for transition to Goods and Service Tax". It provides a very useful backdrop for this seminar. The report highlights the need for better preparedness on the administrative and legislative front before embarking on the implementation of tax proposals presently under consideration.

One important issue brought out in the said study report is lack of required automation in commercial tax administration of State Governments. This is an issue that has been flagged for discussion in this seminar. The Central Government has recently launched a mission mode project for computerization of commercial tax administration of States and UTs. I am told that project proposals for 31 States have already been sanctioned with an overall cost of Rs. 975 crore. Around 70 per cent of the project cost is being borne by the Government of India. Some States like Maharashtra, Kerala, West Bengal and Rajasthan have been able to use these funds and successfully put in place modern IT systems as a part of their tax administration. These systems will support e-services like e-registration, e-payment, e-return filing, e-issue of 'C' forms and consequent convenience to the dealers and also help commercial tax departments of States and UTs to check tax evasion. It is heartening to note that these initiatives have been well received by tax payers in trade and industry, by the tax professionals and the banking sector. These IT systems once developed all over the country will provide the foundation on which GST can be rolled out in a systematic and planned way.

The Central Government has also setup an Empowered Group under the chairmanship of Shri Nandan Nilekani to finalize the design of appropriate IT system for GST regime. I am sure that this Group will be able to give our country a state of the art IT platform which will contribute to making tax administration in the country more efficient.

Introduction of the GST in the country requires not only a modern tax administration but also a large number of legislative changes including Constitutional Amendments. A draft of the Constitutional Amendments required for introduction of GST has been prepared and sent to the Empowered Committee of State Finance Ministers for seeking the views of the States. The Empowered Committee is discussing the draft to arrive at a consensus on the issue. It is my earnest hope that there will be a convergence of views on this draft so that the required bill for making these amendments could be introduced in the Parliament at the earliest.

Efforts are being made in parallel to prepare Central GST legislation and model State GST legislation. A model State GST Legislation, in sync with Central GST Legislation and common processes to be followed by the Central as well as the State Governments will help in strengthening an integrated national market. That in turn should provide a further impetus to the growth momentum of our economy.

On our part, with a view to evolve a consensus we have revised our position to accommodate the concerns of the State Governments. The Central Government is willing to consider a phased approach for the introduction of GST. In a departure from our earlier stand, as a transitory measure, we are also willing to accept a dual rate structure that could eventually lead to a "model GST regime". This ideal structure, as I have earlier said would be to adopt a single rate which is common for goods and services. A consensus is a must for implementation of the GST. The Centre has and will continue to take into account the concerns of the States and will work towards forging a common ground for introducing and implementing of this major tax reform.

The GST's countless benefits will accrue to the country as a whole and especially to the States who talk of facing resource constraints. The GST aims to dismantle the complexities and non transparency in tax regime for goods and services. It encourage a consumer friendly product pricing that should benefit the aam-admi.

The Seminar, as I understand, has experts on the subject from different streams including, academics, tax professional, stakeholders from trade and industry, the State Governments, the Central Government and the revenue auditors. I expect your deliberations to bring about greater clarity on all relevant issues on the subject. The concerns of both large and small taxpayers have to be taken into account for a successful implementation of the GST.

Before I conclude I would like to place on record the contribution of Comptroller and Auditor General of India in drawing the attention of policy makers to revenue leakages on account of legal and administrative lacunas in the implementation of tax regime and for the insights to improve efficiency of tax administration in the country. This effort, I hope would continue in the future.

I wish you all successful deliberations and fruitful outcomes from this Seminar."


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  • Goods and Service Tax (GST)




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