The Hindu Business Line : ‘CST phase-out depends on info exchange systems launch’

Kolkata, Sept. 22 Total phase-out of Central Sales Tax (CST), as a prelude to introduction of an integrated Goods and Services Tax (GST) in the country by 2010 would depend fully on how soon the system of exchange of information on inter-state transactions is put in place.

A working group set up by the Finance Minister and co-convened by the Empowered Committee of State Finance Ministers, comprising officials of the Finance Ministry and all State Finance Secretaries, is now studying the various models of GST. Sub-groups comprising tax experts from various chambers of commerce have also been formed to study the various systems. The terms of reference cover areas like Union Government’s revenue interests, and also that of industry and end consumers.

Speaking at an interactive session on ‘Indirect taxation and its future reforms’, organised by the Joint Committee on Service Tax, Eastern Region (a forum of chambers of commerce, trade associations & small scale industry Federations) here today, Dr Parthasarathi Shome, Advisor to the Union Minister of Finance, said the “inter-operability” of the TIN-X-sys (info exchange system) has been successfully tried out in the North Eastern region. He said a private sector IT company has done it in collaboration with NIC. He described this as a major step forward, as it would revolve around a different level of exchange of information. He said the group was now studying the three critical area of number of rates under GST, its structure and the base, which had a bearing on continuation of Centre’s powers as well as maintenance of States’ powers to tax.

Pointing out that development of such a foolproof system for tracking all interstate transactions was a complex task, Dr Shome said once perfected, it would be introduced in all the States before GST is rolled out. “Needless to add, before we usher in zero CST, we need to guard against tax evasion.” Suggesting that a proper administrative mechanism has to be in place at the rudimentary stage of development, he said the Empowered Committee of State Finance Ministers was now studying the system closely.

Outlining the key objectives of GST, and why the country need to move to this from VAT, Dr Shome said the taxpayer should be able to credit-match all goods and services he buys against what he or she sells.

Suggesting that tax distortions, if any, have to be corrected to prevent cascading effect, he said “all input taxes should be made creditable, irrespective of whether it is a Central tax or a State one, and this is the main challenge”.