Gst Reforms and Intergovernmental Considerations in India

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Working Paper No.1/2009-DEA

GST Reforms and Intergovernmental
Considerations in India

Satya Poddar
Ehtisham Ahmad

March 2009
Department of Economic Affairs
Ministry of Finance
Government of India

GST Reforms and Intergovernmental Considerations in India
Satya Poddar and Ehtisham Ahmad*
Content

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Introduction................................................................................................................. 3 The Current Taxes and Their Shortcomings ............................................................... 4 A. Taxation at Manufacturing Level............................................................................ 5 B. Exclusion of Services.............................................................................................. 5 C. Tax Cascading......................................................................................................... 6 D. Complexity.............................................................................................................. 7 3. Objectives of Tax Reform........................................................................................... 9 A. Basic Objectives...................................................................................................... 9 B. Fiscal Autonomy and Harmonization ................................................................... 10 C. Centre and State Taxation Powers ........................................................................ 13 4. Options for the Centre and State GSTs ..................................................................... 14 A. Concurrent Dual GST ........................................................................................... 15 B. National GST ........................................................................................................ 16 C. State GSTs ............................................................................................................. 18 D. Non-concurrent Dual VATs.................................................................................. 19 5. Tax Base and Rates ................................................................................................... 20 A. Tax Rates............................................................................................................... 20 B. Food ...................................................................................................................... 23 C. Land and Real Property......................................................................................... 25 D. Non-profit Sector and Public Bodies .................................................................... 27 E. Financial Services ................................................................................................. 30 6. Treatment of Inter-State and International Trade ..................................................... 32 A. Place of Taxation, International Transactions ....................................................... 32 B. Place of Taxation, Inter-State Transactions .......................................................... 37 C. Taxation of Imports by the States ......................................................................... 38 D. Monitoring of Inter-State Supplies ....................................................................... 39 7. Harmonization of Laws and Administration............................................................. 40 8. Conclusion ................................................................................................................ 42

*Ernst & Young (India) and London School of Economics respectively. The authors are thankful to Peter Jenkins, Rebecca Millar, Dr. Govinda Rao, and office of the Chief Economist, Government of India, for helpful comments and suggestions on an earlier draft of the paper. The views are personal.

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1. Introduction
The replacement of the state sales...
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