The Hindu Business Line : Kelkar wants rail, construction, housing within GST ambit

New Delhi, June 29 The rail sector should be brought within the ambit of the proposed Goods and Services Tax (GST) regime, the Thirteenth Finance Commission Chairman, Dr Vijay Kelkar, said here today.

He also called for the inclusion of the construction and housing sectors in the GST tax base, stating that the present piecemeal taxation of the housing sector encourages perverse incentives.

“The inclusion of the rail sector will be necessary if a level playing field is to be provided to the road and air transportation sectors, which will be subject to this tax,” Dr Kelkar said at an Assocham national conference on GST here.

The proposed GST will be a dual tax with Central and State GST components levied on the same base. There will be no distinction between goods and services for the purpose of the tax with a common legislation applicable for both.

As for the assessment of the dual tax, indications are that the large entities would be assessed by two authorities — a Central and a State agency for the respective components.

Smaller enterprises with a turnover below a specified limit will be required to interface with only one agency for assessment, official sources said. The Finance Ministry highlighted that the dual tax does not mean two separate levies, but two components of a single tax.

Meanwhile, on the inclusion of Railways in the GST regime, Dr Kelkar said that this will ensure that all inter-State transportation of goods can be tracked through the proposed IT network.

“The Railways themselves will benefit from this by availing (themselves of) input tax credit on the significant purchases made by them,” Dr Kelkar said.

As for the impact of GST’s introduction on the economy, Dr Kelkar said that one can expect a positive impact, with annual GDP gain of about $15 billion.

“Discounting these flows at a modest 3 per cent per annum, the present value of the GST works out to about half a trillion dollars. This is indeed a staggering sum and suggests the need for energetic action to usher the GST regime at an early date,” he said.

One of the terms of reference of the Thirteenth Finance Commission related to consideration of the impact of the proposed implementation of the GST with effect from April 1, 2010 including its impact on the country’s foreign trade.

Dr Kelkar said the GST will promote exports. “A recent study on the impact of the GST on foreign trade indicates that the rate of growth of exports will be significantly higher than that for imports. The GST will also promote employment. Perhaps, most importantly, it will spur growth,” Dr Kelkar said.

The Finance Commission has also expressed its willingness to set up a fund for providing compensation to States in order to advance the implementation of a “flawless GST”.

Dr Kelkar also stressed the need for a common dispute resolution mechanisms as well as a mechanism for giving advance rulings.

On the treatment of inter-State sales. Dr Kelkar said that it would be necessary to guard against tax arbitrage where local sales which will be taxed could be shown as inter-state sales which will not. “Putting in place the rules of supply for the inter-state provision of services will be demanding”, he noted.

For GST to be successful, Dr Kelkar said that all States and the Centre should implement it in a similar fashion. “Only this will bring about the national common market which is one of its goals. This will be possible when there will be a common law, a common assessment procedure and perhaps even a common return,” he added.

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