Consumers should get tax refund proportionate to their purchase of goods and services once the Goods and Services Tax (GST) comes into play,says the Parliamentary standing committee on finance.
The report of the committee is critical to the roll out of the national indirect tax regime with the finance ministry planning to bring in the amendments in Parliament as suggested by it. But the recommendations could scupper the chances of GST coming through as Indias most significant fiscal reform.
The committee has asked the government to initiate these pro-consumer measures to build up support for GST. Passing on tax credit benefit to retail consumers for cushioning them against possible increases in prices post GST is one of those. According to the committee,this system of nationwide tax credit will be necessary as GST could lead to a rise in prices of a vast range of goods and services.
The recommendations could scupper the chances of an early roll out of the GST as such an architecture will be extremely difficult to create. The committee is confident that the proposed information technology platform to be rolled out with the GST system will be able to provide support to the tax credit plan. The panel has,however,endorsed the plan for a GST Council to act as a dispute resolution body and said it will not challenge the supremacy of Parliament and the state legislatures in fiscal issues.
In its report on the GST Amendment Bill 2011,the committee said this collegium of state finance ministers will be able to sort all inter-state differences in the post GST world if it works on the basis of majority rule instead of building consensus every time.
It has also said the compensation mechanism should be built into the constitution amendment bill for GST as a means of permanent aid to states. Several states have said the compensation mechanism should be for a longer period and be made a certain levy on the Centre. States are afraid that with the GST their revenue stream will be crimped.
The finance ministry is unlikely to accept a constitutional guarantee for the compensation mechanism even though it has agreed on a higher and faster pay out terms. The Yashwant Sinha-led committee has also supported the idea that petroleum products may finally be put under the ambit of the GST despite stiff opposition from some states.
However,alcohol will continue to enjoy exemption from the GST. Petrol and alcohol comprise almost 40 per cent revenue in most of the states. Earlier,the Centre had placed both petrol and alcohol in the exempt items list in the bill due to pressure from states including Assam. The bill was introduced in the Lok Sabha in 2011,after getting rejected thrice by states.
The proposed GST council will include the Union finance minister and state chief ministers. It has also endorsed the plan for a floor rate of tax with a band above it to allow the flexibility to raise rates in case of natural calamities.