Goods and Services Tax (GST), which is to replace the existing VAT, service tax, excise duties and central sales tax among others, will be in place from April 1, 2011. This shall dismantle the existing multiple level, regressive indirect tax structure, to be replaced by a single tax making it easy for corporates, small business and traders.
I have long been against artificial barriers being set up by each State and Union Territory that hampered the free movement of goods and services across the country. The check posts at state borders are a source of corruption, national waste due to loss of precious fuel and delays transhipment from one part of India to another by at least 2-3 days, a criminal waste.
This will be advantageous to the consumer too. The current Central and State Taxes are different for different products and in some cases it is as high as 30%. Under the new GST, there shall be a uniform tax of 16%, out of which the Central and the State shall have 8% each. This of course will be implemented over a 3 year period in phases, and as such we shall get the full benefit of this scheme only by 2014. Government has been smart in one way. Our economy has been turning to a service centric one for the past decade. Under the new GST, even the services will be taxed at 16% as against the 12% today, allowing Government to benefit from the phenomenal growth in services.
The only worry will be when the Government decides to increase this 16% at some stage. Then it will be regressive. But that is for another day.
