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INDIA
BUSINESS WORLD -
NOVEMBER 2005
THE MONTH THAT WAS
UNIFIED GST IN 3 YRS, HIKE IN SERVICE TAX UNLIKELY
The finance ministry
will follow a gradual approach to move towards aligning the
goods and services tax (GST) into a single rate. Top sources
said the process can begin in the near future but will take
at least three years to complete. The road map for transition
to a single rate of tax is being deliberated by the finance
ministry. At present, 81 services are taxed at 10% while the
median central value added tax (Cenvat) has been fixed at
16% for goods and states levy 12.5% VAT on goods. The alignment
of service tax with Cenvat is essential to administer VAT
credit uniformly in transactions where goods are used a inputs
to provide services.
A hike in the service
tax rate seems unlikely this year given that the rate was
hiked to 10% in 2005-06 Budget. The rate, which was fixed
at 5% when tax was first introduced in 1994, was raised to
8% in 2003-04.
Top finance ministry
sources said the ministry favoured a phased implementation
of a common GST, an important landmark in tax reforms. "The
phaseout of local sales taxes has taken 10 years. It is not
easy to shift to a uniform tax regime overnight,'' said a
source. The case for a uniform tax on good and services becomes
more compelling in view of India proposing to sign a spate
of free trade agreements.
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