“The tax burden on industry will come down, which accounts for 25 per cent of gross domestic product (GDP) but accounts for 60 per cent of fiscal income. The burden will now be reduced and the industry will become competitive,” V S Krishnan, commissioner (appeals), central excise and service tax, Pune.
However, he said, the situation will be different with services sector. People are arguing for a higher threshold limit for services, which is about Rs 10 lakh now.
The GST regime will help to reduce the incidence of taxation on capital goods which still carries taxes that are are not subject to Cenvat, octroi, SAD and CVD on imported goods, he said addressing a interactive session on ‘First Discussion Paper on GST’, organised by the Bangalore Chamber of Industry and Commerce (BCIC), here.
“This is a major reform. The cost of capital goods in the country will fall and it will give a fillip to industry and trade. The cost of capital goods will fall and industry’s modernisation efforts with regards to power, infrastructure among others will benefit,” Krishnan said.
Stating that the introduction of GST is without doubt the most important tax reform legislation in post-Independent India, he said, “This is a game changer and it’s going to have tremendous impact on India’s competitiveness. Our country will become one common market like the US and Europe.”
The first discussion paper gives a clear signal the Centre will implement GST system between April 1, 2010 and April 1, 2011. It may coincide with the Commonwealth Games being held in New Delhi in October 2010, he stated.
The GST system is being introduced as it will reduce interstate trade barriers and create a common market and secondly, it will redress imbalance in taxation between industry and service sectors. Presently, incidence of taxation is 16.5 per cent on goods. This may come down to about 16 per cent. But services sector, which is presently taxed at 10 per cent may witness rise in taxation to 16 per cent with both the states and center taxing at 8 per cent each, Krishnan said.
GST introduction will also see expansion of taxable base in two ways. On the manufacturing side, today excise duty is only charged on goods, which are manufactured.
Therefore, it does not capture all value addition in manufacturing. Only that value addition is taxed, which amounts to manufacture because of the constitutional provisioning. Rethreading of tires, galvanising and repairs are not taxed. There is going to be vast range of value addition. So basically all economic activities will be taxed in the new tax regime, he pointed out.