GST Matters – Finance Minister’s speech

With the April 1, 2011 deadline for implementation of Goods & Services Tax (GST) approaching, the Government has recently announced certain policy statements through the Finance Minister’s speech today before the Empowered Committee of State Finance Ministers (EC); such statements are indicative of the contours of certain key aspects of the GST framework that are under discussion, and are summarized below:·
Purchase tax would be subsumed within the GST framework·
The threshold exemption limit should be common for (both) goods and services, and would be pegged at INR 1 million·
The threshold limits for compounding for small dealers would also be uniform under Central GST (CGST) and State GST (SGST), and can be fixed at either INR 5 or 10 million·
99 items currently exempted under VAT regulations should remain exempt from both components of GST·
Exemptions granted under the current excise regulations are being reviewed; going forward, items exempted from CGST should also be exempt from SGST·
There would be a phased approach to attain a single rate structure for goods and services; in the interim.
With the objective of accelerating the set up of an IT infrastructure for tax administration which is homogenous across States, an empowered group chaired by Dr. Nandan Nilekani would be constituted· The Central Government would fully compensate the State Governments for losses in FY 2009-10 on account of reduction of the rate of CST and purchase tax; the formulae for compensating the State Governments for losses during FY 2010-11 is being finalized by the EC. This approach would be continued in the GST regime as per the recommendations of the 13th Finance CommissionBMR comments This is a significant event at various levels; it re-affirms the commitment of the Centre to achieve the transition to GST on April 1, 2011. It also signifies the progress in alignment of the divergent objectives of various States towards a common goal through the financial support of the Centre. Further, clarity now available on the likely rates that would be operational under the GST regime (though subject to validation by States). This would enable the industry to appropriately envision the financial impact of GST on the supply and distribution chains. The service sector will be significantly impacted with this development. The key next step would be circulation of draft legislations, including rules for identification of place of supply of services.

ARTICLE BY: CA MOHAN CHAND