Dr. Sanjiv Agarwal
While the country’s economic growth for 2011-12 has been revised downwards to 6.2% from 6.5%, Reserve Bank of India has also now cut the GDP growth estimate for 2012-13 to a low of 5.5%. The coming budget offers yet another opportunity to provide a dynamic momentum, a clear policy vision approach and a commitment to take the nation ahead. Only time will tell us how much and how far it can be explored.
On Goods and Service Tax (GST) front, there is a news to cheer about. The Empowered Committee of State Finance Ministers which met for two days on 28-29 January, 2012 cleared the major hurdles in introduction of GST. However, we are not still sure as to whether it could come in 2014 or even later. Now the onus is on the Parliament to quickly clear the Constitutional Amendment Bill, 2011 which is now almost two years old.
The Centre and the states last week crossed one major hurdle in the way of Goods & Services Tax (GST) by agreeing to a compensation formula for the Central Sales Tax (CST).
A sub-committee of the Centre and states recommended 100 per cent compensation to states for a cut in CST from four per cent to two per cent for 2010-11, 75 per cent for 2011-12 and 50 per cent for 2012-13, respectively and as a result, Centre will now have pay Rs 34,000 as CST arrears to states.
Budget 2013 : What may be in store in our view
By nature, CST is in contrast with GST since the former is imposed on inter-state movement of goods while the latter creates the common Indian market. So, CST is expected to be out of the system, once GST comes. A provision for the compensation is likely to be made in the upcoming Budget.
The Central Government has now agreed to make changes to the Constitution Amendment Bill for GST. In a deviation from its earlier stand, it gave consent to a phased roll-out of GST like the Value Added Tax (VAT). This means that only willing states could embrace the new indirect tax system from the beginning.
States will have the flexibility to opt out of GS. Instead of its earlier proposal for a uniform GST rates across the country, the Union Government has also agreed to have a floor rate of taxation with a narrow band. Thus, GST rates could be in a range or a band to provide flexibility to states. There is also a broad consensus on GST design. States which don’t want GST can opt out and a provision will be inserted in the Bill.
Thus, GST now seems to be a reality if not in 2014, it may surely be in place after the next general election. The key lies in broad consensus, on simple tax law and commitment of states to a tax law which will be a water shed tax reform of the century. The GST will be a win-win proposition for all- government, trade & industry and consumers.