Karnataka preparing itself for the smooth transition to GST next year
Thursday, 10 December 2009
Bangalore: Subsequent to the recent release of the White Paper on GST, Governments at both the Centre and States have initiated the process of dialogue with the industry at large to receive views and feedback on the proposed structure of the GST.

At a CII Seminar on GST organized here today, Mr Sreenivasa Murthy, IAS, Additional Chief Secretary, Finance Department, Government of Karnataka said that Karnataka is proactively preparing itself for the smooth transition to GST when introduced next year.

Speaking about the effect of GST on manufacturing companies he said that manufacturing industries are expected to have a simpler tax regime and perhaps even slightly lower incidents of tax on manufacturing. And they will get input tax credit for both services as well as raw materials.

"If there is a machine which lasts 20 years. It costs so many crores of rupees and the tax is 20 per cent of that, then all that 20 percent cannot be claimed as input tax in one year. The present thinking is that it needs to be spread over. How it will be operationalized, we will know when the GST rules are worked out," he explained, citing an example.

Mr Murthy stated that, Karnataka being amongst the earlier States to adhere to the Fiscal Responsibility Act, more in-depth analysis was required by the Government to understand the various GST tax rates at which the State Government’s revenue would not get adversely impacted.

Speaking about the likely key issues and implications of GST on the manufacturing sector Mahesh Jaising, Member, CII Karnataka Economic Affairs Panel & Partner, BMR Advisors said that under GST, with credit of import GST proposed to be allowed, a trader is likely to be on par with a manufacturer from an effective tax cost/ impact perspective, especially with respect to goods that attract nil BCD. BCD on import of goods likely to be the only differentiating factor between import of inputs and import of final products.

A number of exemptions will be done away with in the Direct Tax Code.

"Only when we do away with these exemptions and allowances will we be in a position to lower the tax rate. Compliance rates should be high in order for the rates to be low. Simple taxes and lower taxes can be sustained only if there is a very wide tax base," Mr Sreenivasa Murthy said.

Mr Murthy, added that Karnataka would be shortly moving over to the Electronic Tax Register System, which would greatly enhance tax compliance.

He said that there was broad consensus amongst all stakeholders on the benefits envisaged by the introduction of GST in India, that it would benefit both industry and government in the long run. However he mentioned that matters related to the rates, offsetting revenue loss by subsuming certain taxes under GST and other areas requiring detailing are still under discussion.

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