Union Budget 2010: The GST Riddle

The Finance Minister of India, Mr. Pranab Mukherjee in his Union Budget 2010 has come up with a string of reforms including the very ambitious GST (Goods and Services Tax). While GST is successfully implemented in countries like Brazil and China, it is somewhat new to India and requires huge operational and administration efforts.

The GST is levied on procurement of goods and services at each stage of the goods cycle right from production of raw materials, secondary process and till the time it reaches the consumer. Hence it can be seen like end-point retail tax. It is a comprehensive value-added tax that is meant to consume all other taxes like VAT, service tax, luxury tax, state charges etc.

In the proposal of the dual GST where the taxation system imposed in the Indian administration will be a dual one: CGST (Centre Goods and Services Tax) and SGST (State Goods and Services Tax) it is expected to reduce the incidence of taxes for consumers in the long run. Since this dual GST process is expected to absorb all other taxes, the assumption is that the dealers and manufacturers will start passing on the benefit of the reduced taxes by reducing the prices of their goods.

Earlier consulting and lawyer services that did not come under the purview of services tax will now be impacted by the enforcement of GST from 1 October 2010. The VAT which was implemented with some hesitation and accepted at large by many states was beneficial for most businesses but complicated due to inconsistency in rates and varied classification of goods under the VAT laws.

I feel that even though there would be many teething problems as far as operational and administrational measures are concerned since the revenue targets are massive and growth rates of different states are also distinct, the GST system will take the Indian economy a long way and help create a more transparent taxation system.

Nevertheless, it seems finally the Indian economy is on a more mature and global path provided it does not get lax when it comes to implementation. Hats off to Pranab Mukherjee and his Financial committee!

Surbhi Bhatia

[Image Source:http://www.flickr.com/photos/worldbank/3980746856/]