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Tax dept split over GST New Delhi
Just as industry and states are gearing up for the switch to a goods & services tax (GST)—an omnibus levy replacing all state and Central indirect taxes—the Central Board of Excise & Customs (CBEC) in the finance ministry wants a rethink. FE has learnt that there have been meetings in the Board on whether excise duty, a tax levied on producers, should be kept out of the purview of the new tax. The difference of opinion within the indirect tax department is highly sensitive, as finance minister P Chidambaram has spelt out the central government's commitment to ring in the new tax by 2010. Sources close to the development said excise duty is not only a system of tax collection, but also works as a fiscal tool, often used by government to promote certain economic activities. Budget 2008-09, for instance, reduced excise duty on sectors such as pharmaceuticals and automobiles where growth was flagging. If excise duty is subsumed within GST, the government would not be able to provide such incentives, goes the CBEC’s line of argument. GST should, therefore, at the first stage consist only of service tax, state-level taxes and duties. The views came up during the finance ministry's internal discussions on the report of the empowered committee of state finance ministers on GST. Experts in the field of indirect tax were taken by surprise. “GST should encompass both Central and state-level indirect taxes, including excise duty, service tax, sales tax, motor vehicles tax, etc. If the Centre and states exclude some of them, it is not proper,” pointed out M Govinda Rao, director, National Institute of Public Finance & Policy. The institute has often been a sounding board for the government's fiscal measures, including GST. The architect of GST, Vijay Kelkar, who is now chairman of the 13th Finance Commission, was not available for comment when FE contacted his office. A GST regime without excise duty would not be successful is the view of tax experts. S Madhavan, head of the indirect tax practice at PricewaterhouseCoopers, said, “ It is our understanding that the recommended model comprises all present indirect taxes, including excise duty. It is clearly expected that excise duty will form a part of the dual GST structure.” Earlier this year, the committee of state finance ministers was requested by Chidambaram to recommend a blueprint for the rollout of GST after consultations with various states. The committee recommended a dual structure, with separate rates at the Centre and states. It suggested keeping a number of local taxes such as octroi and entertainment tax out of the purview of GST, but did not recommend excluding excise duty. Customs duty does not fall within the ambit of GST. While a final decision on the rate of GST is yet to be taken, it is expected to be close to 20%. [Source: The Financial Express]
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