Service Tax Disadvantages

ABSTRACTS:

Goods and Service Tax is a value added tax on both goods and services as against the prevailing VAT only on goods. Some of the most important gains from the GST reform are that it is expected to broaden the tax base, enhance export competitiveness by comprehensively relieving domestic consumption taxes on exports, reduce distortions in the economy through a more comprehensive input tax credit, ensure greater regional equity by getting rid of inter-state sales tax and having a destination-based tax and also help to create a seamless national market by removing inter-state trade barriers. It is expected that this reform will significantly help to reduce the compliance cost for taxpayers by simplifying and harmonizing the tax structure

The central VAT i.e. Cenvat which is currently levied has a narrow base and multiple rates and is levied on goods at the production stage. The value added in subsequent stages is not included in the base in case of Cenvat. In the Central GST that has been proposed, the base will be expanded by merging the service tax with the Cenvat, extended to wholesale and retail levels and will be simplified to have only one or two rates. The merger of service tax in GST helps to ensure not only a more comprehensive input tax credit but also relieves the tax on exports. The State GST will expand the base of the prevailing VAT to include services and the tax will be simplified by merging a number of other taxes such as motor vehicles tax, entertainment tax, goods and passengers’ tax, electricity duty and entry taxes including those levied in lieu of octroi referring to the local taxes on the entry of goods into a municipal area for consumption, use or sale. A significant gain in minimizing distortions and reducing compliance cost for taxpayers can be brought about through the harmonization of tax rates and administration across the

Although the desirability of the reform is not in doubt, however making a transition to GST involves considerable work as well as formidable challenges for the Government. In India, it is leviable by both central and state governments unlike in many other countries where GST is a centralized tax which implies that both the structure and administration of the levy will have to emerge after detailed negotiations and bargaining between the centre, the 29 states as well as the two Union Territories with legislatures. The interests of the states do not always coincide and considerable effort is needed to persuade them to adopt a uniform or a broadly harmonized structure and administrative system for the tax given the sharp differences in the structure of the economy and sales tax revenue across the