CA SUDHIR HALAKHANDI WROTE ON 30-06-2009

The Finance Minister Mr. Pranab Mukharjee during the preparation of Budget -2009 to be presented by him on 6th July must have a very tough task and this is related to the Goods and Service Tax which his predecessor has promised to introduce on 1st. April 2010. The time is very short and if India is going to have Goods and service Tax w.e.f. 1st. April 2010 then in the current Budget speech Mr. Mukharjee has to give some concrete indications about the format of the Goods and Service Tax to be introduced on 1st. April 2010.

Goods and service Tax is essentially a central Tax in which the Tax is to be  imposed and collected by Central Government and it is to be shared by the centre with the states. In true sense it can only be imposed by a central authority.

In our country the states have also the right to impose tax and tax on sale of goods is the right of the states hence VAT is the state subject and Central Excise and Service Tax are imposed by the central Government. Now Goods and service Tax will replace the VAT, Central Excise and Service Tax by one Tax called GST.

If a central GST is imposed which was described by Mr. Chidamabram, the earstwhile in one of his Budget speech as Natioanl GST then states have to surrender their right to tax the sale of Goods. See there is a talk that by 2/3rd Majority this can be done through constitutional amendment but the matter is not as easy as it appears becasue in the economic and political situation in the country it is not easy for the states to surrender their right to tax .

See here there is a great difference between sharing the tax with the centre or imposing and collecting the tax by the states. It will be a tough bargain and further if this is happend then it will re-define  the relations of states with centre in new format.

In the present economic and political situation of the country it is a remote chance to have a National GST . The empowered committe of the states finance Ministers have already suggested the Dual GST in which states and Centre both will impose tax under Goods and service tax probably one will be called the State GST and the other one will be central GST. It is a mystry that in that case how both will be made vatable with each other. Further states are demanding the right to tax some of the services also.

If in a zeal to meet the deadline for introducing the GST dual GST is imposed then it will creat lot of problems and complexities for the Trade and Industry with respect to whole the indirect tax system of the country which is already a complex system. At present Service tax and Central Exicise are vatable with each other and at the state level VAT is working very well thanks to the empowered committe of  the state Finance Ministers and if dual GST is imposed than practically it will be the same system with different name but with more complexities and confusions for taxpayers.

Dual GST is the makeshift Model of real GST and it is not the real GST hence the Finance Minister should try for consensus with the states and ceritanly it will take time hence instead of declaring the dead line in the presnet Budget  say 2010 or 2011 so on and so forth there is a need to give an indiacation about his plans how he will try for the task to make agree the states for National GST.

- CA SUDHIR HALAKHANDI