Bangalore, Oct 12 (IANS) The proposed Goods and Services Tax (GST) would reduce manufacturing cost and benefit end-customers, 13th Finance Commission Chairman Vijay Kelkar said here Monday.
“The new tax regime will reduce prices of manufacturing goods, attract higher investment and create employment due to its rationalisation and simplification of taxes,” Kelkar told reporters on the margins of a conference.

Noting that the Indian manufacturing sector was highly taxed, Kelkar said the elimination of multiple tax structure at central and state levels would make the sector viable and globally competitive.

“Our manufacturing sector is one of the highest taxed sectors in the world. Even a two percent reduction in production cost will increase profits by over 20 percent, giving headroom for reducing prices and benefiting end-users,” Kelkar said after addressing the conference on the GST at the national executive meeting of the Federation of Indian Chambers of Commerce and Industry (FICCI).

Hoping that the central and state governments would build a consensus to introduce the GST from April 1, 2010, Kelkar said such a move would perhaps be the single-most important reform stimulus since the 1991-92 economic reforms.

“A flawless GST will remove the historic tax-induced bias against the manufacturing sector and increase the growth in the output, export and blue collar employment,” Kelkar asserted.

Under the terms of reference, the finance commission had set up a task force to study the impact of the GST on the country’s finances and foreign trade.

The panel also commissioned a study by the National Council for Applied Economic Research (NCAER) to assess its impact on the GDP (gross domestic product) growth and exports.

“The study indicated that the GDP can grow by 2-2.5 percent with the implementation of a well designed GST and exports can be increased by 10-14 percent,” Kelkar said.

The task force report on GST will be uploaded on the panel’s website by this month-end.

On the states’ demand for a two-slab system in the GST, Kelkar said the empowered committee of the state finance ministers would soon come out with a paper on the pros and cons of a single or twin rate structure.

The GST will be a dual tax with both central and state GST component levied on the same base.

All goods and services barring a few exceptions will be brought into the GST base. There will be no distinction between goods and services for tax purpose with a common legislation applicable to both.

“There should be an identical GST laws across states and the centre for the new tax regime to be effective. A unified approach will simplify procedures, eliminate bottlenecks and reduce transaction costs for dealers,” Kelkar added.