Shome sees case for CST

Expert says time may not be ripe to abolish it

International Tax Research & Analysis Foundation (ITRAF) Chairman Parthasarathi Shome has said that a one per cent CST (central sales tax) looks set to continue for at least two more years despite the earlier expectation that it would be abolished once GST (goods and service taxes) was introduced.

Addressing delegates of FKCCI at its 98th Annual General Meeting here on Monday, Shome, former chairman, Tax Administration Reform Commission (TARC), said: “One reason for CST continuing is that an advanced computerised mechanism is essential to track inter-state trade so that input tax credit is made available to traders.”

“Another reason that could not be surmounted is that exporting states are afraid that they would lose too much revenue if they cannot keep any revenue for themselves from their exports to importing states, which could only be averted if the CST continues.”

There has been enormous efforts in ensuring that cascading effect is avoided in indirect taxes. However, FKCCI asked the question whether taxation of value-added beyond manufacturing and on traders at second, third and further levels of CGST would be beneficial for traders.

Shome responded that currently the manufacturing level excise duty is passed on to dealers and traders who cannot take credit for the excise duty they pay. As a result, the system cascades beyond manufacturing. This problem should be eradicated once CGST extends beyond manufacturing up to the retail level, he said. 

Shome agreed with the Federation that taxation of stock transfer has to be undertaken in a simplified model without burdening manufacturers that transport their goods to their units across states. Otherwise, some of the investments that states are making to put in place their SGST would not bring the full potential returns.

Indian economy
RBI chair professor, IIM Bangalore, Charan Singh, discussed about the state of Indian economy in the context of the grim global situation where growth is low and liquidity is high because of the increasing size of balance sheets of many central banks in advanced countries.  
The scenario for the next five years as projected by the International Monetary Fund is also not very promising. The  Indian economy is expected to grow at about eight per cent with an inflation rate hovering between five and six per cent in the next few years. At this level of growth and inflation it will be challenging for India to effectively compete with China and the rest of the world unless there is a change in strategy for encouraging MSMEs (micro, small, and medium enterprises), he said. 

“There is need to study the issues related to MSMEs to improve their productivity and their numbers so as to absorb  the rise in number of people joining the workforce consequent to the demographic dividend.” He noted that nearly 15 million people will annually enter the workforce for the next 30 years.