FM’s speech at meeting of Empowered Committee of State Finance Ministers on GST – Dated:- 10-11-2009 – Following is the text of speech delivered by Finance Minister Shri Pranab Mukherjee at the meeting of the Empowered Committee of State Finance Minister here today: Dr. Asim Dasgupta, Chairman, Empowered Committee, Shri Sushil Modi, Deputy Chief Minister of Bihar, State Finance Ministers and friends! It gives me great pleasure to be here on this occasion when the Empowered Committee under the dynamic leadership of Dr. Asim Dasgupta is releasing its First Discussion Paper on the proposed Goods and Services Tax (GST). At the outset, let me whole-heartedly congratulate all of you for giving shape and form to an idea whose time, I believe, has truly come. We have indeed travelled a long way from the time the announcement was first made in 2006 by the then UPA Government to launch a comprehensive GST in the country by the 1st of April, 2010. At that stage, many of you were preoccupied with
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Centre and others by the States. Each of these taxes applies to a narrow base both in terms of the economic activity it covers e.g. manufacture, sale, entry, entertainment etc. and the range of goods and services it applies to. While the base for many of these taxes overlaps, each is an island in terms of flow of input credit. The output tax is allowed to be adjusted against tax already paid on inputs only in a few cases. Then, there is a variety of exemptions meant to serve multiple socio-economic objectives. As a consequence, high rates of tax are required to be imposed to generate a given amount of revenue. As tax collectors, we may draw comfort from the fact that we manage to generate the targeted revenues. But there are questions that beg an urgent response. First, are collections made in the most efficient manner and do they match the potential? Second, what is the hidden burden of taxes in the form of cascading and double taxation? Third, why is our tax structure so complex and
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mptions to a small list of essential items which impact the common man. To the extent possible, the exemption lists of the States and the Central Government are in alignment; (ii) The rates of tax of CGST and SGST taken together are moderate; (iii) The rates of tax of SGST and exemptions from SGST are uniform throughout the country so that a given set of goods and services invites the same tax treatment in every State; (iv) The input credit chain is seamless covering the entire value chain from manufacturing to retail without breaks regardless of whether goods or services are supplied within a State or across State boundaries; (v) As far as possible, every transaction in the tax net bears both CGST and SGST; (vi) The tax treatment of goods and services is similar; (vii) The Central and State levies are fully neutralized in the case of exports (out of India); and (viii) The procedures are simple and harmonized between the Centre and the States. I am confident that the model proposed in
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that insistence on strict adherence to mutually-agreed rates would impact the fiscal autonomy of States. To begin with, the canvas of fiscal policy is much wider than taxation and goals of public policy are as effectively met through the expenditure side of the budget. Even within the realm of taxation, the belief that the only degree of freedom available to us for enhancing revenues is by changing the rates of tax is a somewhat limited view. There is enormous scope for augmenting revenue collections by improving our tax collection machinery and the delivery of taxpayer services. There is ample evidence to show that lower taxes lead to better compliance and higher revenues. GST gives us an opportunity to bring together the machinery of the Centre and the States to jointly work for better enforcement. To improve the quality of our taxpayer services, we have to focus more closely on the benefits of working collaboratively with the taxpayer community to improve our outreach and assist the
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