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The GST, however, is a comprehensive form of tax based on a uniform rate of tax for both goods

and services. However, the GST is payable only at the final point of consumption.

How will it work in India?

The GST was first mentioned in India during the 2006-2007 budget and the latest budget too
includes the need to take steps to make the implementation possible by April 1, 2010. Given the
federal nature of the country, GST in India is expected to take the form of a dual GST including
both a Central and a state GST.

The Empowered Committee of the State Finance Ministers has been given the responsibility for
creating a model and a roadmap for the GST. While there is very little clarity at present, it is
expected that the central GST will subsume excise duty and service tax and the state GST may
replace the VAT.

What are the benefits of the GST?

At the simplest level, the GST reduces the number of instances where taxes need to be paid thus
reducing the possibility of manipulation on the part of tax authorities and is hence assumed to be
a much transparent mode of administering taxes. It will alleviate the burden of cascading taxes
for individuals. It is also expected to boost revenue collection in certain states and to reduce the
prices of goods.

What are the difficulties involved?

The fundamental problem involved is the decision of a revenue-neutral rate for the GST that will
be acceptable to all those involved and also whether there will be a single rate or two rates at
state and Central level. The federal nature of the country also accounts for its own share of
complications and delays. For the Centre to be able to impose tax at the retail level and for states
to be able to tax services will require constitutional amendments, which will further need to be
passed by the Parliament and state legislatures

Indian truck drivers clock an average of 280 km per day, much below the world average of 400
km per day and far below the 700 km the average truck driver in the US does every day. The
underperformance of Indian truckers has less to do with bad roads and less fancy trucks and
more about prevailing archaic laws.
Truck drivers in India spend 60 per cent of their time off roads negotiating check posts and toll
plazas, says UBS Securities, which has also found that there are 650-odd check posts in the
country and 11 categories of taxes on the road transport sector.

Since road traffic accounts for 60 per cent of freight traffic in India, the slow movement of trucks
across states leads to productivity loss. According to UBS, if the distance covered goes up by 20
per cent per day, Indian truck productivity would improve by 12 per cent.

Higher productivity would cut the need for buffer stocks; reduce the loss of perishable goods, cut
down the need for many warehouses, etc.

Analysts say the implementation of the goods and services tax (GST) could provide the kind of
productivity boost illustrated above. Gautam Chhaochharia, head of India Research of UBS
Securities, explains the benefits of GST,

1) Unified market: The GST will cut down the large number of taxes imposed by the central
government (eg. central VAT or excise duty, services tax, central sales tax on inter-state sales,
etc.) and states (VAT on sales, entertainment tax, luxury tax and octroi and entry taxes levied by
municipalities). This will lead to the creation of a unified market, which would facilitate
seamless movement of goods across states and reduce the transaction cost of businesses.

2) Lower incentive to evade tax: Currently, companies have to pay taxes on entire underlying
value of the product/service, but under GST, companies in a chain will have to pay tax only on
the value-addition. So, the actual tax paid will likely be small and reduce the incentive for
evasion.

3) Widen tax base: GST will give credits for all taxes paid earlier in the goods/services chain
incentivising tax-paying firms to source inputs from other registered dealers. This will bring in
additional revenues to the government as the unorganised sector, which is not part of the value
chain, would be drawn into the tax net. Besides, states will be allowed to tax services (as
opposed to only the central government) under the GST.

According to the National Council of Applied Economic Research, government's tax revenue
will increase by about 0.2 per cent because of GST implementation, while GDP growth could go
up by 0.9-1.7 per cent. Exports will also get a boost as they are zero-rated for taxes and also
because the fall in cost of manufactured goods and services under GST will increase the
competitiveness of Indian goods and services in the international market, UBS says.

Finance Minister Arun Jaitley on Friday said that ensuring the passage of the constitutional
amendment Bill in Parliamentary will be a priority for the government. The government will also
need the consent of 50 per cent of states to implement GST by April 2016.
However, a consensus is still missing on the final GST tax rates and recommendations vary from
16 per cent to 27 per cent.

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