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Goods and Service Tax; Towards a Silent Economic Revolution

Goods and Service Tax; Towards a Silent Economic Revolution

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Published by Om Prakash Yadav
The govt is likely to implement GST from 1st of April, 2009. It is a silent revolution as will bring huge revenue to the exchequer without imposition of new tax. It is a long due reform.
The govt is likely to implement GST from 1st of April, 2009. It is a silent revolution as will bring huge revenue to the exchequer without imposition of new tax. It is a long due reform.

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Published by: Om Prakash Yadav on Jun 24, 2009
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07/02/2014

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GOODS AND SERVICE TAX;TOWARDS A SILENT ECONOMICREVOLUTION
Om Prakash Yadav Now distribution of portfolios amongst Ministers isover, the government is expected to come back tobusiness within a couple of days. Finance minister has categorically stated that he would be presentinga full budget in July and assured optimistically and enthusiastically that growth and fiscal deficit would be taken care of simultaneously. It is not as easy as it apparently looks to be especially in view of prevailingglobal financial conundrum. The fiscal deficit anrevenue deficit have been far ahead of targets set by FISCAL RESPONSIBILITY AND BUDGET MANAGEMENT  ACT, 2004. Thanks to huge financial stimulus packages and injection of liquids in the markets by lowering REPO, Reverse REPO, CRR and SLR. by RBIas monetary measures. Farmer loan waiver hasadded additional financial burden on the state’scoffer.
FROM WHERE HUGE REVENUE WILL COME
- TheUPA has secured mandate on AAM ADMI’s aspirationsand therefore it has to deliver accordingly. The Ruraldevelopment and welfare schemes require hugerevenue. Pertinent question is from where will money come without enhancing existing tax burden? Thegovernment has already hinted at more relief indirect tax; thus challenge of the government would be immense magnitude. The government cangenerate additional revenues from indirect taxeswithout enhancing the existing tariff. The fact of thematter is that indirect tax in one area where very 
 
fewer reforms have been made over a coupledecades. Kelkar, chairman of 13
th
FinanceCommission has evolved an excellent and modernindirect tax regime known as GST (goods and serviceTax), which, if all goes well would be madeoperational from 1
st 
April, 2010.Unfortunately very little information is available inthe public domain about it. The government hasmany challenges before it in implementing anmaking it a huge success in terms of amount of revenue collection. A consensus has to be arrived at in the Empowered Committee of States FinanceMinisters(ECSFM) so that all states agree to it and help evolve a tax regime which is in congruent withthe new global financial order dominated by cultureof corporate governance.
WHY A NEW INDIRECT TAX REGIME?-
1990s marked the beginning of new era of economic policy after formally eschewing Nehruvian socialistic pattern of economy. Subsequently policy of liberalization,globalization and privatization (LPG) became new mantrasof development. New economic and industrial policy spurred the growth and India could shed its stereotypeimage of Hindu growth rate.We brought in reforms in almost all sectors of Economy;this led to rapid growth in sectors like service,manufacturing, capital market and finance. Gradually culture of corporate governance and finance capitalismushered in our country’s economic arena. But indirect tax regime remained one area where minimum amount of reform was made. In fact it represents grotesque of erstwhile economy fettered with obstinate regulations.With the economic growth registering around 7-9%, over a
 
decade, India needs to bring about a massive overhaulingof existingtax regime.Present regime is marked by plethora of taxes collected both by States and the Centre. This system of taxation iscumbersome, complicated and taxing as well as unfriendly to honest tax payers. Sometimes, the amounts spent oncollection of taxes are more than that of collected taitself. Across states it is also, many a times, non-rational,impractical and unscientific. It is in this backdrop, Vijay Kelkar, chairman of 13
th
Finance commission was giventhe job of making it rational and modern in tune withdeveloped nations. The Proposed GST is being finalized by Empowered Committee of State Finance Ministers(ECSFM). If all goes well, this new system would subsumethe older one. It is estimated that introduction of GSreform will add 500 billion Dollars; half the GDP of India, tostate’s coffer adding 1.4% to the GDP. If it proves true, iis going to bring about a silent revolution in the history of economic development of India.The present pattern of contribution of different sectors tothe GDP in terms of percentage is vastly different fromwhat it was in pre 1990s. for instance, the Service sector’scontribution has swelled up to 50% and that omanufacturing sector stands at about 25%, whereas ; thecontribution of agriculture has been drastically reduced to24-25% in the GDP. This changing pattern is suggestive of the fact that we ought to evolve a new and modern but unified tax regime which should be in commensurate withthe changing times. It is in this perspective the taregime is urgently required to be overhauled, simplified and unified.
HOW WILL THE GST HELP IN SPUR IN GROWTH ANDINCREASE THE VOLUME OF COLLECTION.

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