ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Towards a Goods and Services Tax

The model goods and services tax is a step forward but is nowhere near what the economy requires.

The union finance minister’s announcement in budget 2006-07 of the government’s intention to usher in an integrated tax on goods and services (GST) by 2010 seems to be bearing fruit. The joint working group of finance secretaries/senior officials of the central and state governments set up by the empowered committee (EC) of state finance ministers has drawn up a model for consideration of governments at both levels, leaving some time to debate and deliberate the proposal. It seems the model is still in the draft stage and will be finalised and presented to the public after some more deliberation. It may thus be premature to comment on what at this point is only a tentative outline. However, some indication of what is being contemplated has appeared in the press. If what is reported is correct it would appear that while GST is well on the way to replace the existing system of domestic trade taxes, in several important respects it will fall short of what a good value added tax (VAT) – that the GST represents – would require.

The model that is being put forward is that of a “dual VAT” that will be levied at two levels of government, the centre and the states. The states’ fiscal autonomy will not be impaired. However the dealers who will be liable to collect and pay the two GSTs, one central and the other of the states, will not have to deal with more than one tax authority. A single return will do, presumably as in the Canadian model in Quebec, where the provincial government collects the federal GST along with its own tax, the Quebec sales tax. The states will collect the tax on behalf of the centre and remit the amounts so collected to the coffers of the union.

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