A task force on GST set up by the Thirteenth Finance
Commission has recommended that the tax on all goods and services be dropped
to 5% at the Centre and 7% at the state level, and that all exemptions be
scrapped. It does not, however, recommend a concessional rate for essential
items, as is the norm at present with the central excise and state value-added
tax.
The task force recommendations need not form the basis of
any decision on GST framework made by the Centre and states, both of which are
at an advanced stage of finalising their proposals for a dual GST. However, it
would serve as an input for the Finance Commission to work out the formula for
sharing Centre’s tax revenues with states. The report suggests that states as
well as the Centre completely give up their discretion to effect any changes
to tax rates unilaterally.
The changes will have to be approved by a council of
ministers, which would have the state finance ministers and the Union finance
minister as members. States would see this as an encroachment on their fiscal
autonomy. The council is to be a constitutional body, unlike the empowered
panel of state FMs which is a toothless body.
The panel has recommended that exemptions given to SEZs be
scrapped, and instead all goods and services exports be zero-rated. Only
public services provided by all levels of government, unprocessed food covered
by the PDS, education and health are to be exempt.
Other far-reaching recommendations include bringing real
estate into the ambit of GST. Thirteenth Finance Commission Chairman Vijay
Kelkar had been keen on this, and said as much at various fora. GST on real
estate would benefit homebuyers. Prices would fall as developers would get
credit for taxes paid on all inputs.
The impact of broadbasing the tax and dropping the rate
would be mixed. At one level, tax rates on most items will plummet,
translating into lower prices for buyers. The report suggests the transition
to the ‘flawless GST’ would result in a 1.22-2.53% drop in the prices of most
manufactured goods. Conversely, a host of items that are currently outside the
tax net or enjoy concessional rates — such as agri commodities and services —
may become slightly expensive.
(Source : The Economic Times, dated 16-12-2009)
