India is edging closer to pushing through a value-added taxor goods and services tax (GST), as it is known here, that some are touting as“the single most important initiative in the fiscal history of India.”
But edging closer doesn’t necessarily mean actually passinglegislation, suggests Bloomberg. After all, this is India.
“The implementation of the new system has been held up onmany fronts: disputes over its precise shape, resistance on the part of somestate governments because they fear a loss of revenue from the levy of statetaxes, the need to amend the Constitution (which has a different view oftaxation powers divided between the central government and the state than theone the GST envisages), and the absence of any concerted pressure from thecitizenry,” writes Chandrahas Choudhury.
And none of those problems has really disappeared -- whichis perhaps why last week’s Business Standard reported that “the ParliamentaryStanding on Committee on Finance may not be able to submit its report on theGood and Services Tax (GST) during the forthcoming Winter Session.”
After postponing it three times, the central government nowaims to introduce GST from April 1, 2013. Once implemented, it will subsumemost of the indirect central and states taxes, duties and service taxes. It wasto be introduced from April 2010.
Prime Minister, Manmohan Singh’s commitment to freezing thecountry’s debt-to-GDP ratio at 5.3 percent this year, and slashing itsignificantly in the future, makes passing the GST virtually mandatory. And itcould actually start some changes that would be politically popular.
“Not only would the implementation of the Goods and ServicesTax increase government revenue, it would have a tonic effect on the battleagainst corruption, too, by simplifying a byzantine tax system and encouragingwhat economists call ‘virtuous growth,’” Choudhury explains.
How so? By initiating a so-called “last-point retail tax,”GST would eliminate a byzantine system of cascading taxes that India’s stateand federal governments attempt (in vain, often) to collect at every stage ofthe manufacturing process. That would eliminate at a stroke many opportunitiesfor companies to pay the tax man, rather than pay the actual tax.
