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REFORM OF INDIRECT

TAXES
Hurdles Before the GST

INTRODUCTION
GST was targeted to be in place by fiscal
year 2013-2014 (DECISION STILL PENDING)
Many state govts. Continue to express
concerns about revenue loss , fiscal
autonomy and lack of GST
infrastructure.
Also there are some legal technical
and administrative issues that need to
be addressed before GST becomes a
reality

THE RATIONALE AND


BENEFITS
The multiple form of taxation was
Creating cascading effect
Acting as an impediment to attaining the
objective of a Rational indirect system
Enhancing the scope to evade taxes ->
undermining tax efficiency
Leading to price distortation and suboptimal
resource allocation

BENEFITS
More transparent and corruption free
tax administration
Minimise cascading effect
Better allocation of resources
It will provide a simple structure to
levy , collect and administer the
taxes in the country.

The Road Traversed

ITE Committee headed by LK JHA was formed and in its report it


highlighted the distortion in the allocation of resources and the cascading
effect caused by IT. (1978)
The committee suggested to come with a modified VAT system so the LTFP
came up with major reforms in excise and custom taxation and proposed a
modified VAT system called MODVAT(1985) which was introduced in
1986.
In 1991 TR committed suggested to convert MODVAT into VAT .
In 2002 the government constituted a task force to suggest measures for
simplification ad rationalisation of IT.
In 2005 the states introduced sales tax VAT which provided for ITC.
The FM announced in the UB for 2007-8 that Empowered committee of
state finance miniters would work with cent. govt. to prepare a road map
for GST.
1st discussion paper on GST released on NOV 10th 2009
13th FC was requested to study the impact of implementation of GST
including its impact on FOREIGN TRADE.

THE AUTONOMY QUESTION


The centralisation of economic and financial
powers should not exacerbated
The relative tax effort of the states is
commendable when compared to the centre
In fiscal consolidation also states have performed
better
The design of GST should be such that it does not
reduce the revenue autonomy of the states

Legal Issues
The GST council should be set up as
a statutory body as proposed under
article 279A and it should be given
legal backing while extending its
scope beyond just offering
recommendations.

Administrative Preparedness

The tax administration ought to be well equipped to handle


both the old and new systems
Major challenge : building up the capacity of the
administration to implement the new tax.
This would require building capacity in matters such as the
accounting system , forms and procedures, assessment ,
auditing and computerisation

We need tp establish a permanent instituitional


arrangement to negotiate , harmonise and monitor the
reform process as well as the working of the new tax
system.