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GST
GST
A nationwide GST is intended to usher in a uniform market for goods and services, cut business
costs and boost government revenues. But several states and the main opposition Bharatiya
Janata Party (BJP) have resisted the proposal.
The GST is an indirect tax that would replace existing levies such as excise duty, service tax and
value-added tax (VAT).
The states and the government will impose the tax on almost all goods and services produced in
India or imported. Exports will not attract GST.
Producers will receive credits for tax paid earlier, which will eliminate multiple taxation on the
same product or service.
Direct taxes, such as income tax, corporate tax and capital gains tax will not be affected.
Eliminating a multiplicity of existing indirect taxes will simplify the tax structure, broaden the
tax base, and create a common market across states and federally administered districts.
At the same time, GST will lower the average tax burden for goods and services companies that
now pay "cascading" taxes on top of taxes through the production process. Reducing production
costs will make exporters more competitive.
States are worried they will lose their fiscal autonomy if they cannot impose taxes on their own.
The BJP has said these concerns must be addressed by the government, but Prime Minister
Manmohan Singh has said the resistance is because of political reasons.
In the first year, the government proposes two rates -- 12 percent for essential items and 20
percent for others. In the second year, the higher rate would be lowered to 18 percent, with the
goal that both rates converge at 16 percent, split equally between the federal government and the
states.
ARE ANY EXEMPTIONS PROPOSED?
Yes. The GST will not cover goods like crude oil, diesel, petrol and alcohol. These goods are
major sources of revenues for most states.
New Delhi will compensate states for potential lost revenue and Finance Minister Pranab
Mukherjee has assured states that if needed, he would sweeten a 500-billion rupee ($10.8 billion)
fund that a government panel has proposed as an incentive for the states to buy into GST.
The bill will go to a standing committee of parliament, which will make recommendations and
send it back for voting. The government is not bound to accept these recommendations. It is
unlikely the bill will be taken for voting before the monsoon session of parliament, likely in July.
The bill needs the support of two-third of parliament and the approval of half of India's states.
Revenue Secretary Sunil Mitra has said the implementation is likely to miss an April 2012
deadline. It would be the third such delay.
The GST was initially intended to be revenue-neutral but is now expected to increase the tax take
thanks to more efficient collection and increased compliance.