Protecting vote bank and indulging in ‘grand bargain’ have become the stumbling blocks for passage of the Goods and Services Tax (GST) Bill , a path-breaking tax reform measure which alone can lift the country’s economic growth by well over one percentage point, reveals an ASSOCHAM study on GST.

While releasing the ASSOCHAM paper D S Rawat, Secretary General ASSOCHAM said, “it is true that some states would have a chunk of revenue loss in the course of transmission to GST but they can be compensated. The Task Force has recommended a sum of Rs 50,000 crore for compensation in case of revenue loss to the states but the states are making it a political issue. Some states in their recent budget presentations have complicated the indirect tax regime by adding layers to tax slabs and raised taxes with an eye on enhancing the extent of compensation.

“The compensation has become a matter of grand bargain between the Centre and the states. …In fact some of the state governments want to use the tool of taxation for maintenance of their vote bank, pointed out the ASSOCHAM study.

It said both the Centre and the states will have to show endurance up to some extent for better tomorrow . With the inclusion of the tax on services as well as tax on manufacturing, the tax base of the state governments will increase significantly, whereas the tax base of the Centre on the other hand would increase only to the extent of tax on sales. Hence, it is not correct to argue that the Centre will gain more, said Mr. Rawat.

“State governments can achieve their objective of social and economic welfare through increased revenue…They should not politicise this issue,” adds the ASSOCHAM paper.

The paper said that introduction of GST would increase the competitiveness of Indian goods and services in the international market. “A single market would resolve many political and economic issues in a diversified country like India and the objective of cooperative federalism behind implementation of GST”, said Rawat.

Listing the benefits of the GST, the ASSOCHAM paper said with the elimination of the cascading effect and lower tax rate, the prices of goods and services will be reduced for consumers. Saving on account of input tax credit if passed on to customer in the form of lower prices will increase sales in volume.

Besides a transparent and complete chain of set-offs will result in widening of tax base and better tax compliance which will also lead to lowering of tax burden on an average dealers in the industry, trade and agriculture.

However, the small scale sector can be affected adversely. At present, small scale manufacturing specified goods are allowed exemption of excise utp a turnover of Rs 1.5 crore. These units, which may be required to register for payment of GST, may see this as an additional cost. Moreover, the entire IT systems will have to be redesigned.

In the initial stages of implementation, interaction with the state and the Central GST authorities will have to be done with every transaction.

A whole lot of taxes both the central and state level would be subsumed in the GST. At the central level these include excise duty, additional excise, service tax, additional customers duty, special additional duty of customs , surcharges and cesses.

At the state level, the taxes to be subsumed in GST would include: VAT/sales tax, entertainment tax, luxury tax, taxes on lottery, betting and gambling. State cesses and surcharges relating to supply of goods and services and entry tax not in lieu of octroi.