Kelkar Committee
Kelkar Committee
Kelkar Committee
Kelkar on
Tax hound
Indirect
Taxes
T
he preface to the Vijay Kelkar report hints at
an ambitious bargain between the Central
government and States towards rationalizing
The Task Force all the State taxes on goods and services. A majority
of proposals will most likely be resisted by the
headed by Shri States. Further, when the emphasis has been on a
K. Vaitheeswaran
Vijay Kelkar on imple- state-level VAT, the Task Force headed by Shri
Kelkar recommends a state-level goods and service tax (GST) as well
mentation of the as a Central GST.
Fiscal Responsibility
Goods and Services Tax
and Budget Mana-
gement Act, 2003, has The report states that independent taxation of goods and services under
different laws create the same kind of problems as selective taxation of
submitted its report, services and that the line between goods and services is getting blurred
which will have far with disputes landing up in the Supreme Court. Since there is a strong
inter-dependence of goods and services in the production and distribution
reaching conseque- activities, the report recommends that tax on services should be fully inte-
nces. The report con- grated with the existing central VAT (Cenvat) on goods by a modern VAT
type levy on all goods and services to be imposed by the Central
tains proposals for Government hereinafter called the Central GST.
integration of goods
and services taxation Features of Central GST
as well as the sharing (i) Value addition in the post manufacture stage being in the nature
of service tax rev- of services can be taxed by the Centre.
enues with (ii) The practice of allowing abatement on MRP in respect of goods
covered under Standards of Weights and Measurement Act
States. should be discontinued.
a party to the crucial “Task (iv) The revenues collected from Central GST
should form part of a divisible pool that would be
Force” headed by Shri Vijay shared between Centre and State at the appropriate
Kelkar nor has their point of rate. The revenue collected from State VAT on imports
would be assigned to the State of import destination.
view been considered in the States are not likely to be very enthusiastic about
matter even though the tax this proposal, since very few States have ports and air-
ports and only some States have significant traffic in the
reforms involve a major par- form of imports.
ticipation by the States. It is not clear that as to what is meant by assignment
of the revenue to the State of import destination.
Import happens at the port, which is within the con-
trol of the Customs Department. If the plan of the
(iv) The purchaser of the financial services can claim Central Government is to collect the State GST on
credit in respect of services received from a regis- import and assign it to the State, the same would not be
tered financial service provider. acceptable to the States.
Further, the States, which don’t have any port or
The computation mecha- airport, are unlikely to agree. Sharing of revenues has
nism called ‘subtraction always been a sore point between the Centre and
method’ is in reality a tax on the States.
profit made on the transaction.
The report while dealing with Agreement between Centre &
direct taxes does not refer to States
any abolition of income tax on The Task Force seeks that Centre and States
banks and other financial ser- reach an agreement for a comprehensive
vice providers. The report, tax on goods and services comprising the
thus, on proper translation, following:
indicates an Income Tax on the Centre and States should exercise
profits, a Central GST on the concurrent but
profits as well as a State GST independent jurisdiction over common
on profits. tax bases.
Centre and States have to replace existing octroi,
Imports: (i) The counter vailing duty is to be CST, State level sales tax, entry tax, stamp duty,
replaced by two-part levy, the first being a reflection of telecom license fee based on revenue sharing,
the proposed Central GST and the second being a State turnover taxes, tax on consumption and sale of elec-
level GST. This indicates that services, which are tricity, tax on transportation of goods and services
imported, are also likely to taxed. and passengers, excise taxes and all other cascading
(ii) The collections under both parts should be separately type levies and replace with two separate laws viz.
accounted and all imports should be taxed at the same rate Indian Goods Services Tax Act and State Goods
under Central GST and State GST as applicable to con- and Services Tax Act.
sumption of domestic goods. Both tax jurisdictions will exclude the tax paid to the
other jurisdiction from the assessment of value bases.
(iii) Where the imported goods and services are used as
Centre and State should have independent power to
intermediate inputs in production or distribution, credit
fix tax rates. However, there must be co-ordination
for the proposed Central GST and State GST shall be
between the levels of the Government.
allowed against Central GST and State GST on final
The Central GST should be at 6%, 12% and 20%