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Budget enables dual GST!

Published on Wed, Mar 03,2010 | 12:04, Updated at Thu, Mar 04 at 11:36Source : 

By S Madhavan, Leader-Indirect Tax Services, PwC


Budget 2010 is, in many ways a landmark one as it significantly advances the broad agenda of fiscal reform on indirect taxes by way of introduction of the dual GST, to replace the current multiplicity of indirect taxes across central and state levels.  It also contains proposals that strongly signal the philosophy and the thought process surrounding the GST, of a broad based and moderately rated tax that would apply to all consumption at a uniform rate, whether they be of goods or services.   

In his Budget Speech, the Finance Minister has devoted one paragraph to tax reforms.  Therein, he informs that on the goods and services tax, there has been an effort to generate a broad consensus around its design. He refers the first Discussion Paper of the Empowered

Committee of State Finance Ministers as also to the report of the 13th Finance Commission, which was released a day before the Budget.  He states that the Government of India is actively engaged with the Empowered Committee to finalise the structure of the GST as well as the modalities for its expeditious implementation.  The Finance Minister concludes by suggesting that it would be his “earnest endeavour” to introduce the GST in April 2011.  Now, as opposed to his much more affirmative words with regard to the introduction of the Direct Tax Code (DTC), also scheduled from April 2011, the words “earnest endeavour” appear to introduce a caveat in regard to the implementation date of the GST.  This is perhaps inevitable, given that, unlike the DTC, the GST requires both the Central and the State to collaborate and arrive at a consensus on the model, structure and the rates of the GST.  Indeed, in his post Budget interactive  meeting with the business and media, the Finance  Minister has stated that unlike the DTC, where the Government of India alone can take the decision on implementation, the GST  requires consensus and agreement between the Centre and the various Indian States and that it was for this  reason that the April 2011 deadline for the GST was only  a ‘best efforts’ indication.


Nevertheless, it is good that there is finally a date out there in regard to the GST implementation, which would require all stakeholders from  the Central Government to the State Governments to the tax administration and the taxpayer community to work in close cooperation to make this a reality.  It is inevitable, of course, that the Central Government play a lead role in this regard and it is here that the personal ownership that the Finance Minister has taken is most welcome.

If one were to analyse as to how Budget 2010 has advanced the GST, it can be seen that the enhancement of the excise duty rate by 2%,  in order to bring it on par with the service tax rate , is indicative of the Government’s resolve to ensure that the GST rate is uniform across goods and services. . This is actually a very strong signalling of this intent. On the rates themselves, it is also a clear signal that the Central GST rate, under the dual GST, will, in no case, exceed 10%. Indeed, it is likely that the 10% is more a short term response to the fiscal needs and allows headroom to the Finance Minister to bring the Central GST rate down, once there is consensus on the aggregate GST rates. Further,  Budget 2010 has  majorly extended the scope and scale of the service tax, and hence broadened the base for the tax, by way of its extension to domestic passenger travel by air, transportation of goods by rail, certain elements of corporate healthcare, sponsorship and related activities pertaining to sports events and events in general.  In addition to the extension of the tax as above, significant amendments have been made to present provisions so as to ensure that the tax is paid on all transactions of leasing of commercial property and on transactions of building and subsequent sales of all immovable property.  These amendments very clearly signify the intent of the Government to extend the tax to all economic activity, without exception, so as to ensure that the consumption of all services, and for that all goods, is taxed uniformly, without exception. 

As a final step further towards the roll out of the GST by April 2011, Budget 2010 has announced the roll out of the project ACES - Automation of Central Excise & Service Tax and the approval of the Mission Mode Project for computerisation of Commercial Taxes with an outlay of Rs.1133 crores, targeted to build the IT infrastructure and revamp the internal work processes of the indirect tax administrations at the Centre and the States based on the use of Information Technology. These are clear pointers to a strongly IT enabled GST.

To conclude therefore, Budget 2010 is significant not only for the announcement of the GST, albeit on a ‘best efforts’ basis, but also with regard to furthering the broadbasing of consumption taxes in general,  besides ensuring that capacity building, by way of an IT infrastructure, is also in place, as enablers to the dual GST.


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