Source: The Hindu

The smooth passage of the Finance Bill by Parliament was facilitated by the slew of concessions extended by Finance Minister Pranab Mukherjee. As many as 47 amendments to the original bill were passed. The concessions aggregate Rs.1,500 crore, a large portion of this attributable to procedural changes in the method of levying and collecting taxes.

For instance, the deferment by three months of a new procedure to collect service tax on an accrual basis instead of on actual receipts will mean less revenue than what was envisaged in the budget.

Manufacturers of readymade garments, especially those in the small-scale segment, have got relief by way of higher excise duty abatement. By far the most anticipated announcement was the rollback of the 5 per cent service tax on certain grades of hospitals and diagnostic services in the private sector.

This budget proposal drew a good deal of flak. Had it been implemented, it would have increased the already high health care costs. However, while the government will now forgo around Rs.300 crore, it was not just revenue considerations that were behind the proposal.

The idea of bringing the various entities in the booming health care segment under the tax net has been around for quite a while. Besides, as the Finance Minister said, the move was meant to prepare the ground for the Goods and Services Tax (GST). It is unlikely that this sector will be exempted when the GST is finally in place. The principal idea behind the GST and the Direct Taxes Code (DTC) — the two key reform measures — is to have a tax structure with moderate taxes, minimum exemptions, and wide coverage.

Mr. Mukherjee has kept the promise he made in the budget speech by introducing a Constitution Amendment Bill to pave the way for the GST. Essentially, the Bill seeks to give powers to the States to tax services and to the Centre to levy duties beyond the factory gate. The Bill incorporates features that seek to resolve the sharp differences between the Centre and the States over the implementation of the far-going structural change.

A GST Council, headed by the Union Finance Minister, and a GST Dispute Settlement Authority are proposed. In bringing the Bill before Parliament Mr. Mukherjee may have kept his word. But it will be over-optimistic to expect the GST to become a reality on April 1, 2012. The legislation, which will now go to a standing committee, requires two-thirds support in both houses of Parliament and to be ratified by at least half the number of State legislatures.