Experts hail draft GST paper but want octroi to be subsumed

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The government on Tuesday took a major step towards rolling out a uniform tax that will do away with an array of other tax and go a long way in simply the country's tax structure. A draft code for discussion, or white paper, for the fancied goods and services tax (GST) was put out by the government today. Even though the government did not spell out the actual rates in the proposed tax structure and also shied away from committing to a deadline on its implementation, the rough contours of what would be a dual-structured tax structure at the state and the central level were given out. The GST is in a fight against time to meet its ambitious April 1, 2010, rollout implementation date.

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Reactions from experts started flowing in soon after the white paper release. "This is one of the best reforms in indirect taxes or even other economic reforms," said industrialist Rahul Bajaj. "We in the industry would like it to be effective from April 1, 2010, It should not be delayed - I am not talking about a 15-day or a month's delay but it should not be delayed [more than that]."

Bajaj urged various states to quickly sign up for the GST. "There could be a lot of implementation of the GST. Both the industry and the government have to prepare for it," he said. "Also, all type of entry taxes and octroi must be subsumed in this GST."

"I think the government is extremely receptive to suggestions because they want the GST to work rather than fail," said Som Mittal, President of IT body

"There was a time when it was said that we will introduce the GST in April 2010 and our request to the finance minister was that it would be better to put a fool-proof system of GST rather than solve issues as they come in. At least 95% of the provisions should be cleared because it is a big change. We welcome the GST, I think that's the way to go. I am sure that this consultation process will be helpful."

Tax experts react

"This document is still a very important document despite it not having many details in it because in a sense it formally commences the whole process of GST introduction in India," said Rajeev Dimri, Leader - Indirect Tax Practice, BMR Advisors.

Even in its rough state, the paper sheds light on the government's philosophy on transaction of goods and the rate structure, Dimri said. "It is significant in terms of the fact that it sets the ball rolling and it provides enough information to say what is about to happen. As much as a white paper would have."

He added that if the government insisted on all states taking up the GST at the same time, the April 1, 2010, deadline would be difficult to be met. "This is how VAT got introduced in India. It did not go live in all states at the same day."

Pratik Jain, ED - Indirect Tax, KPMG, said the government proposing to set the central GST threshold at Rs 1.5 crore would come as a relief to small traders.

The industry, he said, was mainly looking at two things. "How simple and stable will be the regime and once GST is implemented, how both the centre and states evolve a framework to bind themselves to a uniform GST. We don't want GST to go the VAT way where you now have different states having different VAT rates on various products," he said. "So far, these details seem to be missing at a broad level. But I think this is a good beginning and this is the first official document, which is there in the public domain. I am sure we haven't heard the last of it."

Harishankar Subramaniam, Tax Expert, Ermst & Young, said the GST promises to remove inefficiencies of the present tax system, "though very ideally, one would have preferred a single-rate GST."

Subramanium said the new structure should be put across in a way that states, which have the autonomy of having their own GST legislations, does not result in changes in rates across states. "Another area of concern is that I did not see the mention of octroi getting subsumed."