GST regime to propel economic growth, and to enhance competitiveness of India Inc

Economic reforms that involved State Governments and made India competitive can push India’s GDP growth rate to 12% from the current 8% which was achieved in spite of all hardships and impediments. ``With right reforms which touches the State Governments, the growth rate can be raised to 12%. Reforms can easily add at least one per cent each to manufacturing, agriculture, export and infrastructure sectors. To deliver this the reforms and efficiency of governance should be at the State level also’’, Mr Venu Srinivasan, Immediate Past President of the Confederation of Indian Industry (CII) and Managing Director of Sundaram-Clayton Ltd, said in Chennai on Saturday.

Delivering the keynote address at a seminar on `Goods and Services Tax’, organized by CII, he said that reform is important to generate employment, and the country for an inclusive growth needed 20 million new jobs every year’’. He said the services sector alone could not create this. Manufacturing sector should be accepted as a key player. Reform should be to remove the bottlenecks in the growth of this sector.

Mr Srinivasan placed the proposed new `Goods and Services Tax’ (GST) in this overall context of the economic reform process and said “it is the most important aspect of the economic and fiscal reform’’. There were many benefits from GST. Also there were concerns. But they could be removed, he said . ( GST was expected to be effective from April 1, 2011.)

GST and the Direct Tax Code (DTC) were the two major economic and fiscal reforms that were to be unfolded in the coming months. Both would have significant impact on business. These path-breaking reforms should make India more competitive, especially its manufacturing sector. China, the country with which India has to compete in the world market, was 15-20% more competitive than India. Its share of manufacturing in GDP was over 30% while India had only 15%.

In India 30% of the population is still left out from the benefits of the reform process. For an inclusive growth manufacturing sector has to contribute more’’. He said to make the manufacturing sector more competitive the interest rates should be rationalised, input costs should come down , running of a plant should be freed from the plethora of rules and the industry should be saved from the cascading effect of the present t tax system. He hoped the GST would look into the taxation aspect in a more creative way. Mr Srinivasan said India needed more of a free trade arrangement among the States than international agreements.

Mr T Kannan, Chairman, Trade, Taxation & Globalisation, Sub-Committee, CII Southern Region and Managing Director, Thiagarajar Mills Ltd, said GST was the latest among the major reform proposals of the government. All reform like MODVAT benefited the industry as they helped remove tax distortion and made tax regime more simple and transparent. This would lead to improved tax collection and reduction in fiscal deficit. He called for a phased approach in the implementation of GST and expected a model GST would be arrived at without diluting its essential content. He said CII would submit to the government the inputs provided by the captains of the industry on GST, the desired rates, its level of preparedness for the implementation and its concerns.

GST is an economic reform rather than a tax reform, Mr Uday Ved, Executive Director and National Head of Tax, KPMG, said. He said all reforms changed completely the way business was done and they were absolutely eminent tools for a global link-up.

Mr Sachin Menon, Executive Director & Head of Indirect Tax, KPMG, said, GST was the ``mother of all fiscal reforms’’. It would open the era of unified Indian market and there was lot of expectations. It would end the regime of a plethora of taxes.

In his presentation on an `Overview of GST’, he said it changed the present origin-based tax system to a destination-based one. The present tax system was more to the advantage of the manufacturing States than the consuming States which could not get the fruits of the taxes paid by its people.

Mr Menon aid GST simplified the tax structure, removing the multiplicity of taxes to a single tax. However, there will be both State GST and Central GST, but the system would be more transparent. There would also be an integrated GST for the orderly distribution of revenues among the manufacturing and consuming States and for the refund of tax credits.

There would different GST rates ranging from 12 %, including both of the State and Central taxes. The key drivers of GST would be the change in point of taxation, to the first stage of transaction, removal of C-Forms and making exemptions as post-tax refund.

Mr Menon said the KPMG survey found that over 70% of the corporates were unaware of the implications of GST. He suggested that the companies should set up a multi-departmental core team including finance, tax, IT, accounts and logistics, to drive the company through the GST reform. ``If anything was found to be unsuitable, product-wise, region-wise, and state-wise, it is the time to highlight such issues to the Government. Above all create awareness about GST in the organization ‘’, he said.

The Seminar also featured a Panel Discussion on “GST – Challenges & Opportunities” moderated by Mr Sachin Menon. Mr K Sridharan, Chairman, Task Force on GST & DTC, CII-SR & CFO, Ashok Leyland; Mr S Chandramohan, Convenor, Economic & Taxation Panel, CII Tamil Nadu & CFO, TAFE Motors & Tractors Ltd; Mr V Sankar, CFO & Executive Director, Hinduja Foundries Ltd; Mr P S Margabandu, CFO, Grundfos Pumps India Pvt Ltd amongst others participated at the Panel Discussion by presenting their respective industry view points on moving towards the GST regime.