Goods and services tax (GST) is a transformative tax reform. The passing of the Constitutional Amendment Bill set the ball rolling by putting in place a dual GST—both the centre and the state will concurrently tax the whole value chain from raw material to retail.
This, however requires a lot of changes that need to be done in the system.
Creation of state-level GST secretariat.
The implementation of GST will fundamentally transform the way tax policy is formulated in India. Hitherto, while central indirect tax policy formulation was in the domain of the ministry of finance, each state government through its own commercial tax department formulated the state VAT policy. With the introduction of GST, both centre and state will jointly formulate tax policies with respect to indirect taxes.
A large number of day-to-day implementation issues could be sorted out, including issues of compliance verification. Importantly, trade and industry in the states could approach this body and meet both centre and state officials in a common forum to sort out various issues.
Centralized registration for some specified pan-India services like banking, insurance, telecom and IT enabled software services. Under the present fiscal arrangement, the centre has exclusive power for taxation of services. After the passing of the Constitutional Amendment Bill, the states have also acquired the power concurrently with the centre to tax services. The concurrent power to tax services has created some procedural problems which needs resolution. One is the requirement of state-wise registration and the other is transfer of input credit pools between the states.
One solution could be to use the large taxpayer units set up for providing centralized registration to select pan-India services as the centre would initially be dealing with all the service tax assesses, this could be thought of initially and could be reviewed later.
Changes in the law
Creation of a centralized technical secretariat both at the centre and state level for binding clarifications on assessment matters. One of the main grievances of trade and industry is that the present taxation system entails complex dispute resolution systems. This is compounded by non-uniformity of assessment decisions by field officers. There is merit in this perception.
The way out of this lies in making a conceptual distinction between “offence cases” and “assessment cases” in the domain of “disputes”. While offence cases which are factual in nature could be decided by the field officers, clarifications relating to assessment matters which have recurring implications must be vested with a centralized technical secretariat. For the centre, this could be located in the tax research unit through creation of a technical secretariat.
To sum up, the changes suggested above will usher in a world-class GST system. Also, in the process, strengthen the fiscal bonds between the centre and the state and bring alive the vision of cooperative federalism enshrined in our Constitution.