Last month, the government released its much awaited white paper on the proposed goods & services tax or GST. This paper met with disappointment from corporate India and the tax community because not only are many details missing, but there are fundamental issues with the structure and format of this proposed tax that need to be sorted out. Now, the Maharashtra tax administrators are adding their voices to the dissent.
Today, the Maharashtra Commissioner of Sales Tax, Sanjay Bhatia reiterated that April 1, 2010 is in fact an over optimistic deadline for the implementation of GST and perhaps we should be aiming for April 1, 2011 instead.
He said that the white paper proposes that the Central GST and State GST, that is CGST and SGST, will be concurrently administered by the centre and the state. Mr. Bhatia seems to believe that this will lead to immense confusion because it means that for every transaction, every dealer has to go to two authorities. And in some way that sort of subverts the intent of simplicity for which GST is being put in place in the first place.
The second and more fundamental concern he had was about the very structure of GST itself. Now the empowered group of state finance ministers in this white paper have proposed a multi rate GST, which means that there will be a lower rate for essential commodities and a regular rate for everything else. According to the commissioner, this means that states will have to put in place a very high rate for regular items and this revenue neutral rate, or RNR will simply end up being negative for the industry as a whole.
Sanjay Bhatia, Commissioner-Sales Tax, Maharashtra said, “Maharashtra had been propagating a single rate because a single rate would have come to about SGST 8% or roughly CGST 8% or 9%, so we could have about 16%. But if you have two rates, let’s say the lower rate is for the states 5% and the upper rate – I have calculated my RNR, and it varies from 13 to 15%. Plus 5%. So, if it is 15% or even 14% and if centre also comes up with 14%, you can see what is the upper rate.”
The industry and the government have been giving their feedback to the empowered group of state finance ministers on all these issues. Hopefully they will be addressed before GST finally becomes law.