(The Hindu)-A ringside view of the proposed GST. • Touted as the “single most important tax reform since 1947”, the Goods and Services Tax (GST) has been in the offing for a decade and continues to figure as a top priority on the economic agenda of the government. • Although the model GST has been the subject of wide scrutiny and debate, most of the discussions have been centred on its road to passage or on its larger form and structure. ISSUES: • The existing tax system has typically followed a model of rewarding States where production activity is based (origin States), as opposed to States where consumption is high (destination States). Accordingly, most States have incentivised the setting up of local industries in order to drive growth and augment tax collections. • In the inevitable shift which the Indian GST necessitates, destination States such as Bihar and Kerala clearly stand to gain in terms of revenue, while origin States such as Gujarat and Maharashtra stand to lose, and had expectedly put up more initial opposition to GST. In order to partially level the playing field, the Centre proposed a 1 per cent origin-based additional GST. However, recent reports suggest this will be sacrificed for the Congress’s support in the Rajya Sabha. • Unlike the existing system, which has greater scope for manual intervention, the GST aims to achieve a tectonic shift to a singular digitised compliance set-up. While this would be a great leap forward if implemented well, what has perhaps been underestimated is the huge geographical disparity across the length and breadth of India in terms of IT connectivity and functionality. • Tacit recognition of this handicap is found in the ‘Digital India’ campaign, which has only recently been launched and admittedly has a long way to go to achieve reasonable Internet penetration. As a result, in some sections of the country today, manual tax compliance remains the only option. • Further, the proposed GST will also be far more dependent on IT. For instance, the IGST mechanism, which enables the crucial fungibility of taxes across States, will be unworkable outside an automated set-up, especially given the sheer volume of transactions that the GST will subsume. • The proposed IT infrastructure will have to be suitably equipped, as any snags would effectively render the levy dysfunctional. • Under the GST, States will have the constitutional power to tax on a par with the Centre, bringing a host of service sectors within their scope for the first time. Past precedent has shown that such dual taxing power has resulted in complete chaos at the cost of assesses (the clearest instances are the taxation of software, intangibles, and so on). • Additionally, it is expected that issues of place of supply will also arise, with the Centre and States each asserting that the respective supply has occurred within their jurisdiction, so as to be able to garner the tax revenue. Poorly drafted rules will only aid and abet the confusion — for instance, a draft provision which proportionately divides the tax revenue where a supply of goods/services is made across multiple States. • The other significant issue is of the culture and approach of the revenue authorities. With the implementation of the GST in India, many taxpayers will, for the first time, be exposed to the State authorities. Possibly, clear and objective guidelines may whittle down the potential for any abuse of discretion.




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