1. Mission GST

This piece of writing inter alia is based on the information / article of Mr. Ajay Shah that appeared in ‘Economic Times’ and ‘Business Standard’ respectively, both dated 17-1-2007.

2. Due to the entry of India in global markets the whole scenario of doing business and levying taxes, whether direct or indirect is constantly undergoing a sea change. No sooner the ink on State’s VAT legislation is drying, the Union Government is contemplating introduction of ‘Goods & Services Tax (GST)’ effective from F.Y. 2010-11. This was stated so by Mr. Parthasarthi Shome, Advisor to Union Finance Minister, while releasing a report on GST prepared by ‘Assocham’. On this occasion, Mr. Shome stated thus: "We have to think of a rate that is not too high and at the same time appropriate for meeting State expenditure". Enlisting the challenges in the implementation of GST, he said one of the biggest tasks was to conceptualize a model, which will fetch adequate revenues for the Centre and States but would not be too high. Besides the tax structure and rate, and tax assignment vis-à-vis revenue share also need to be worked out. It has therefore to be seen whether there was a need to amend the Constitution or bring GST within the existing legislative framework.
    

3. So, if we read the mind of the Union Finance Ministry, it appears that ‘Mission GST’ is just 3 financial years away. However, the suitable boy (VAT) may not like to read this story. Apart from this, there is a move by the Government at bringing services rendered by authors, composers, sculptors and other artists under the ambit of service tax. A proposal to bring services provided by these entities under the tax net in Budget 2007-08 is currently being examined by the Finance Ministry. The reason and feedback for this thinking is, some Indian authors and their books have done very well in the fast few years with some of them receiving huge advances for their creations. Also, there has been a growing interest in paintings of Indian painters with most of the Art galleries doing brisk business. Further, the Government has to expand the service tax net in lieu of transfer of 44 new services to States as a compensation for the phase out of Central Sales Tax from the next financial year.
    

4. Mr. Ajay Shah, in his article stated that the last big piece of the puzzle in tax policy is the GST. Ten years ago, wise fiscal experts felt that a GST was impossible. But things changed – the 88th Amendment clarified the picture on taxation of services, the income tax exemption on IT services showed that India can build IT systems, the State VAT effort showed that co-ordination between States could happen due to the role played by the Empowered Committee and the Centre joining their hands together. With this track record and maturity of minds, the GST is feasible. And hence, the Finance Minister has now promised a 2010 date for going live with the GST. If dream of Union Finance Minister comes true, then, the GST will be accompanied by removing almost all other existing taxes, living only 3 taxes: (a) The Income Tax, (b) The GST and (c) Property Tax. As a result, there will be great reduction in compliance costs, economic distortions and harassment. Furthermore, many of the taxes that would be removed are already branded as ‘bad taxes’ on turnover such as the stamp-duty or octroi.
    

5. So the road map to achieve the above is being planed thus: An Empowered Committee for GST implementation now needs to be set-up, chaired by the Finance Minister, in order to pursue four areas of work viz., (1) IT systems. The ‘TIN’ is the right foundation for implementing the GST. TDS in an employer/employee context is exactly the same as the GST in a supplier/purchaser context, (2) IT systems should be a merger of Cenvat, the service tax and VAT on imports into a single tax called the Central GST, (3) The next step is that of arriving at a ‘grand bargain’ with States. The fairest formulation involves placing the entire GST collection into the hands of the Finance Commission for sharing with States and (4) The last step is that of co-ordinating tax administration with the States. Each firm or assessee should face only one taxman, and all firms should face the same IT systems. One possibility is that of using the Centre as tax collector for big firms and the State as a tax collector for small firms.
    

6. So, the "Rainbow" which we loved might have faded in the ‘sales tax cases’ but the same is now reappearing under ‘Mission GST’. Therefore, trading community as well as tax practitioners both would be happy to welcome ‘Mission GST’ in the near future.

2. vat Notification dated 8th September 2006, vis-à-vis rti act, 2005

Our professional colleague Shri Kishor Lulla from Sangli, filed an application dated 4-10-2006 with the PIO, Finance Dept. seeking the following information in respect of Notification No. STR.1506/CR-38/Taxation-1 dated 8th September 2006, where under Maharashtra VAT (Fourth Amendment) Rules, 2006 were notified.

2. In the above-mentioned Notification first para begins with the words "Whereas the Government of Maharashtra is satisfied that circumstances exist which render is necessary to take immediate action further to amend the Maharashtra Value Added Tax Rules, 2005 and to dispense with the condition of previous publication thereof………..". In the above context, please give the following information:–

1. Copies of the documents from your record from which it can be seen that which were the circumstances, which rendered it necessary to make the above-mentioned Notification with immediate effect.
    

2. Also give us the copies of the documents because of which the Amendments were pending from 1-4-2006.
    

3. As per our record and knowledge the date of Gazette Notification is 8-9-2006. However, we could see on website www.vat.maharashtra.gov.in on 29-9-2006. That means the rules were made known to the general public only on or after 29-9-2006. Thus, there is a apparent contradiction in respect of effective date of the Notification. As such, please give us the correct information and the effective date thereof from your record along with copies of file notings of the concerned papers.

3. The State PIO vide his letter dated 7-11-2006 though gave his reply in general terms, but it did not touch information in respect of the above points on which information was sought.
    

4. Being aggrieved by the above reply, Shri Kishor Lulla filed an appeal before the appellate authority, which was fixed for hearing, by the said authority on 17-1-2007. In the meantime, for the sake of convenience, Shri Kishor requested me to appear before the authorities on his behalf. So, I appeared before the Appellate authority for hearing on 17-1-2007 and was duly heard. Now, we are awaiting the order of the appellate authority in the matter. On receipt of the same, our readers will be kept informed through this column. This shows that Shri Kishor has become an ‘Right activist’ in addition to ‘Consumer activist’. I therefore take this opportunity and request our members / readers to join this tribe of activists and to use the RTI Act, 2005 for the good of the society.

3. Taxing times on the eve of Union Budget

The Union Government yet to take a final call on the compensation of the fresh list of 44 items proposed to be brought under the ambit of VAT to compensate States for revenue losses arising due to a one percentage point cut in Central Sales Tax from 4% to 3%, effective probably from 1-4-2007.

2. The revenue generated from 44 new items is expected to range from Rs. 5,000/- to Rs. 10,000/- crores for the States. With 1% reduction in CST, States are expected to face losses of Rs. 6,250/- crores in F.Y. 2007-08.
    

3. It is reported (ET dated 8-1-2007) that no decision has been taken on including tobacco in the new list of items that will come under VAT. The Government is also yet to finalise the date for introduction of the new tax regime. The date of April 1, 2007, which has been mentioned in some media reports, would thus appear speculative at this stage. Further, in response to a specific query on tobacco, Mr. Asim Dasgupta clarified, "No decision has been taken on bringing tobacco under the new VAT list."
    

4. Now, coming to the service tax – there is a good news inasmuch as, the Centre is looking at doubling the exemption limit from current Rs. 4 lakh to Rs. 8 lakh for service providers, due to buoyancy witness in service tax collection. However, industry bodies have also represented for enhancing the threshold limit from Rs. 4 lakh to Rs. 10 lakh. So let us await Union Budget on 28th February, 2007 when the curtain will be opened for general public.

4. Hats off to n.r. narayana Murthy

Our celebrated Infosys Chariman, Mr. Narayana Murthy, talks right and right only, particularly, in the discharge of taxes by any kind of tax-payers. Here below, is an extract from his interview that appeared in ‘Business Standard’ dated 17-1-2007:

2. Narayana Murthy today called upon corporates to forego the benefit of wealth tax waiver and set an example in ethical behaviour.
    

3. Speaking at a meeting organized by CII on ethics in business, he said the business leaders had to adhere to ethical behaviour if they were to race ahead of others.
    

4. Indian tax rates were one of the lowest in the world, he said. "Wealth tax has also been rationalized and there is also no tax on dividends. Several offers get tax exemptions that we definitely do not need or deserve," he said.
    

5. "We pay taxes in Singapore, in the U.S., in every other country. But we do not want to pay taxes in our own country. I think it is silly. We as a corporate leader must stand up to say that this is not correct," he said.