Tuesday, June 9, 2015

Proposed Goods And Services Tax Regime States’ Economic Sovereignity Is Likely To Be Curtailed

Since the introduction of the Government of India Act, 1935, the power to levy tax on the sales or purchases of the goods along with some other allied functions within the respective territorial areas of the erstwhile provinces of India was vested upon the Provincial Legislative Assemblies of the States. After India became a Democratic Republic Nation, the Constitution of India (Constitution) was adopted and it became effective from the 26th January, 1950 with the Federal structure of Governments. The existent four taxation laws on the sales and purchases of goods in Assam, namely; the Assam Sales Tax Act, 1947, the Assam Finance (Sales Tax) Act, 1956, the Assam Sales of Petroleum and Petroleum Products including Motor Spirit and Lubricants Taxation Act, 1955 and the Assam Purchase Tax Act, 1967 were amalgamated and consolidated to give birth to a new tax law, the Assam General Sales Tax Act, 1993 (AGST Act) from 01.07.1993. The said law Act was dismantled to design the Assam Value Added Tax Act, 2003 (VAT Act) effective from 01.05. 2005. The levy of tax at every stage in the series of the sales of goods made with the provision of credit of input tax paid at the point of the previous purchases by a registered dealer to the other was the main phenomenon of the Act. The goods like- crude oil, petrol, diesel with other petroleum products, tea, bitumen, liquor etc., however, were kept out side the VAT scenario, designing those items as the first point taxable goods in Assam in the new Act. Contrary to restriction on input tax credit on the sales of such goods, a clash was maintained by incorporating the provisions for set-off the tax, paid on the auction purchased tea and warehouse purchased branded liquor, creating thereby an utter confusion. The State’s legitimate tax has been secured, the traders use to get the input tax credit to avoid double/multiple taxation, but the consumers are to bear the burden of heavy price rise owing to such multiple levy of tax, beset with, other allied elements. The VAT system is methodical, chronological and self-designed, but some inner set-backs are well existent there. The mounting chronic evasion of taxes without proper vigilance machinery is counted as a serious blow to the legitimate revenue earnings. The mode of input tax credit, the ways and style of assessment including audit assessment seem to be unsystematic and irrational. Of course these asre the administrative matters and responsibility lies with the competent authority to look upon the same.
      A project was drawn up by the Government of India (Centre) a couple of years back for unification of some Central and State tax laws to be baptized as ’Goods and Services Tax’  (GST) in a designed manner. The project, however, could not be materialized as yet, though it was announced to make effective from 01.04.2010, being followed by other dates. The ground-yard of the project could not be prepared, by way of amending the Constitution, as some States are not in favour of the project, which they apprehend that the prolonged fiscal autonomy and austerity of the States would be hijacked by the centre. Such unification is, no doubt, aimed at simplification of the multiple tax system at various angles, but it is likely to create a vacuum in the State’s economy making them solely to be dependant on the Centre.  The process of amendment of the Constitution was started long back, but it is still in the doldrums. The Lok Sabha recently adopted the bill, but it is under scrutiny by the Rajya Sabha. Even after Rajya Sabha’s clearance, the concurrence from at least 50% States will be incumbent. Of course, Assam was the pioneer to accept the project without proper study and examination on the ultimate fate. It is still doubtful, if the proposed project can be materialized from 01.04.2016, as announced by the Union Finance Minister Arun Jately, while the project is still hanging in the balance.
      The GST literature indicates that a series of Central and State laws will be unified and designed in a unique way to simplify the existing multiple levy of tax at the Central and the States’ level. It is intended to consolidate and to design a single law at the behest of the Centre. The unified Central cum State laws will cover the following:
     Central taxes :  Central Excise Duty, Additional Excise Duties, Excise Duty levied under Medicinal & Toiletries Preparation Act, Service Tax, Additional Customs Duty commonly known as countervailing Duty (CVD), Special Additional Duty, Surcharge and Cess.
    State taxes : Value Added Tax, Sales tax, Entertainment tax, Luxury tax, Taxes on lottery, betting and gambling; State Cess and Surcharges, Entry tax not in lieu of Octroi.
 The item of goods, proposed to be excluded from the GST net are - petroleum and petroleum products, namely; petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption besides tobacco.
 A dilemma is prevailing on the fate of the existing Purchase tax, Stamp Duty, Vehicles tax, Electricity duty and other Entry tax and Octroi measures. In Assam, the measure of purchase tax is not presently effective; though a vital necessity is felt that the last point purchase of goods like raw jute, superi, hides and skins, bones of animals, birds etc. should have an independent base of tax entity, as previously existent for the growth of economy.                                                                 
Contrary to the proposed tax measure, the GST law is intended to discourage the value added tax charged and collected on each sale, but to charge the differences only to avoid heavy price rise, as prevalent. The Tax Credit Accounts are to be guided, as under:
(A)    Out put tax: (i) CGST, (ii) SGST. (Central GST and State GST)
(B)       Input tax: (i) CGST and IGST against CGST out put tax, (ii) SGST and IGST against SGST out put tax (Central GST, State GST and Inter-State GST).
 Recently, the Union Finance Minister declared that one percent tax will be levied temporarily on the inter-State sales.
    A full-fledged scheme of the GST is yet to be made public. It will be available after the Constitution is amended and the draft law is processed.
      The GST will be a Central law. In respect of industrial production, the element of tax on GST will be levied at source in a comprehensive manner. The subsequent levy of such tax is to be followed according to the formulated principles. It may be that the States will simply be the mechanical device of the centre and is to remain cipher. The States, as we guess, will not be in a position to safe guard the local interest, when so warranted, as at present and to remain dependent on the Centre for fund allocation and other allied matters. The federal character of the States in the matter of fiscal autonomy is likely to take a good bye and unitary imposition at the behest of the Centre may take berth. A final picture will be visible after the project is materialized.

1 comment:

Praveen Goyal said...

Great Writing about VAT registration. This above information is very helpful for all those person that looking for Accounting and Tax Consult. Keep up sharing..

DSC Provider