The Finance minister Arun Jaitely on Monday was successful in breaking the deadlock on Goods and Services Tax (GST) but at the cost of petro products likely to be kept outside the Constitution Amendment Bill.
Expressing his views on the above Bipin Sapra, tax partner at EY, says it is vital to keep petro products within the Bill for the GST to be an efficient structure even if it is zero rated now and a rate is put on it later on. Because if not then another Constitutional Amendment would be needed to get it in and that is lot of hard work since the Centre and states do not reach consensus so easily, he adds.
"I would want that once we are putting a new tax in system, we should walk away from whatever inefficiencies are there in the present system. We need to take steps, maybe baby steps at a time and we should move towards a GST," says Sapra.
The Centre and the states reached a consensus on the Constitution Amendment Bill on GST, after FM's meeting with state finance ministers.
Below is the transcript of Bipin Sapra's interview with Menaka Doshi, Senthil Chengalvarayan and Anuj Singhal on CNBC-TV18.
Menaka: Do you have any clarity on whether the consensus that was arrived late last night between the Centre and the state involves excluding petroleum products from goods and services tax (GST) or is that still up in the air?
A: Whatever news I have is from the newspapers and they say that petroleum is outside the GST and that is a worrying fact for me.
Menaka: Why is it a worrying fact? Is it possible that initially they may have put or would include petroleum in the Constitutional Amendment Bill but zero rate it to assuage the states concerns and thereafter put a rate to it later. How is that different from keeping petroleum out all together and why is the later so bad?
A: Right now the states are not aware; as a matter of fact nobody is aware as to how the GST will fare going forward. Understanding from what we take from the other VAT jurisdictions across the world once GST comes in there should be buoyancy, there should be higher tax collections for both states and Centre and general well being all around as they say that the GDP will grow.
However, at this stage there are so many apprehensions whether the revenue would go down what it is compared to today.
So, if you keep petroleum totally outside the GST or petroleum totally outside the Constitutional Bill then you are not even giving it a chance because petroleum is one of the main constituents of any production, everything is somewhere or the other, any manufacturer of goods is connected with petroleum in one form of another. There should be VAT on the flow of for real efficient GST.
If it is outside the Constitutional Amendment we do not even have a chance two years down the line to put it as an executive measure. So, we would need another Constitutional Amendment to get it in whenever we are ready for that and that I think is a lot of hard work since the Centre and states do not reach consensus so easily.
So, it should be within the GST, it should be within the Constitutional Amendment and once everybody feels that they are ready, as an executive measure there can be a tax put to it.
Menaka: You are okay if it was in the Constitutional Amendment Bill but zero rated at this point in time and a rate put to it only say a couple of years down the line?
A: Yes, the point is the states apprehension is that they are going to lose revenue. The Centre is allowing them to tax petrol, diesel, etc through any other tax. So, say they put in a state excise tax or Cess or something and it is outside the purview of GST, once the GST sets in every other thing gets structured, there is clear buoyancy in the other goods. The state tax can be reduced and GST rates can be increased, so parallelly there can be a movement from one rate to another while the states would not lose any revenue GST would become an efficient structure.
Senthil: Isn't that what the states were comfortable with, that is the message that we were getting. Is that something you have heard and so why would the government want to keep petroleum completely outside the Constitutional Amendment Bill?
Menaka: I am not sure all the states were comfortable with this solution of keeping it in the Constitutional Amendment Bill but zero rating it till they are able to do the switch over. I think some states were uncomfortable with that as well. Can you shed some light on which states stand to lose the most and therefore could potentially be blocking even that resolution or that reconciliation of allowing it to be in the Constitutional Amendment Bill but zero rated till the switch over is possible?
A: It would be the oil producing states especially Gujarat which has the maximum capacity to my mind of refining and producing oil. That would be the state which would have the maximum impact because when GST comes in and if there is a full GST on petroleum, when the petrol or the diesel is shifted from one state to another whatever taxes are paid in that state would get transferred to that state. So, the oil producing states or wherever the refining capacity is there are going to be the most hit Gujarat being one of them.
Menaka: The other sticky issues - entry tax was one and state compensation was the other. Both key fundamental aspects of GST what is the news you are picking up on that and is a half baked GST better than a no GST at all?
A: The news that I hear is the states might agree to subsuming GST if they get the compensation as desired by them and the Centre is looking at getting the compensation within the Constitutional Amendment Bill; that is what I read in the newspapers and that is fine. However, half baked GST depends on how much baked it is. If you are keeping major things outside the GST, keeping a complex structure, making multiple compliance levels it is going to be tough for the tax payer. I won't want that.
I would want that once we are putting a new tax in system we should walk away from whatever inefficiencies are there in the present system. We need to take steps, maybe baby steps at a time and we should move towards a GST.
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