A major tax reform like goods and services tax is a challenge and considerable preparation is necessary before implementing it.
There is a need to bring in legal/constitutional changes, reforms in central tax system and state tax systems, said M Govinda Rao, director, National Institute of Public Finance and Policy.
Making a presentation at the workshop on 'Indepth Analysis on the Discussion Paper on the Goods and Services Tax', organised by the Bangalore Chamber of Industry and Commerce, in Chennai and Bangalore on Tuesday, he said both the Centre and the states need to carry out certain policy reforms like inter-state appropriation of service tax revenue, individual state revenue implications and work out compensation formula.
All services under the service tax law must be taxable other than a small exemption list, he said. "If we need to have a good GST system, both the Centre and states must agree on a compensation formula immediately. And there must be no truncated GST. The entire country must move on one date," Rao said.
All states and Union territories should move in one go," Rao said in view of the deferment of implementation of GST by six months to one year, the Union finance minister Pranab Mukherjee, in his forthcoming Budget, should announce unified rate of tax.
For example, presently the excise duty is charged at 8 per cent on majority of commodities and 4 and 12 per cent on certain other commodities, these rates should be merged into one common rate of tax. Similarly, the Service tax should work in reverse mechanism, he said.
"We need to educate the taxpayer and train officials of various departments," he said.
The Centre should enforce a unified law and set up an unified authority to assess taxes. He also stated that the 12 per cent tax slab recommended by the Kelkar task force is very low and it should be fixed at 16-18 per cent, he suggested.
Rao also suggested taxing railway freight and passenger fare. There must also be no MRP-based taxes on commodities including life saving drugs and medicines, he stated.
