A single unified market doesn’t exist within India andthere are significant inter-State tax and non taxbarriers to trade. There is a need to develop anational level single market by removing all theexisting barriers to trade, multiplicity of acts, fiscalpolicies and marketing arrangements across thecountry.
cascading effect on cost of products and services adversely affects competitiveness of indigenous goods and services; different tax treatment for manufacturing and service sectors leads to litigation; high cost of compliance and tax administration add to the cost of doing business in India and discourage investment and; uncertainty of tax incidence on investment in manufacturing and services and litigation due to frequent changes in tax laws and procedures discourage new investment and leads to high cost economy.
The existing tax structure has fragmented Indian market in to 29state markets through tax barriers which discourages efficientproduction and supply chain models and restricts trade. Standalone multiple taxes have cascading effect on cost leading tocompetitive disadvantage to Indian industry. Central Sales Tax(CST) on interstate movement of goods is not integrated withValue Added Tax hence CST paid on inter-state procurement isnot eligible as a credit and continues to be extra cost of doingbusiness. Similarly, manufacturers are unable to avail themselvescredit of state taxes and miscellaneous central taxes, such asVAT entry tax, octroi, etc against excise duty and vice versa andthese become added costs along the supply chain. Therefore it isimperative that the existing multilayer complex tax structure isreplaced by a rational Goods and Service Tax structure mergingall the existing indirect taxes on tradable goods and services.
The proposed GST will replace most of the existing multiple taxes such as excise duty, service tax, VAT with a single tax. The states and the union government will impose the tax on almost all goods and services produced in India or imported. Exports will not attract GST. 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.
The Constitutional Amendment Bill, after incorporating suggestionof the Standing Committee and the states, can be tabled inParliament in the Winter Session in December. The Bill will have tobe passed by a 2/3rd majority in Parliament. In the current politicalsituation, when allies of the government are opposing the recentreforms, getting a 2/3rd majority won’t be easy.However, if the government gets lucky and manages that too in thesame session, the Bill would be sent to the states and only whenpassed by 50% of the 29 states it would become law.All states will also have to pass their GST legislation. By that time allpolitical parties would be in election mode and GST could take aback seat in the government’s pursuit of populist measures.
GST should be implemented in India so as toreduce the tax burden on consumers anddecrease the production cost of producerswhich would help in overall sustainable growthof Indian economy in a long run. As it willremove the tax distortions from the economy.leading to sustainable higher growth based oncompetitive strength of the country. Simple taxsystem will attract more productive investmentfor growth.