In a bid to evolve a consensus with States on a unified single rate structure for the Goods and Services Tax (GST) over a three-year phase, the Union government on Wednesday proposed a three-tier tax structure, to start with, from April 1, 2011.
At a meeting with the Empowered Committee of State Finance Ministers here, Finance Minister Pranab Mukherjee proposed the adoption of a dual rate structure for the GST, both at the Central level (CGST) and at the State level (SGST), with the revenue so garnered to be shared equally. Accordingly, with its introduction from the next fiscal, goods will attract a combined GST at the standard rate of 20 per cent, essential items at a concessional 12 per cent and services at 16 per cent.
Suggesting a phased approach for the rollout of the new indirect tax regime — in lieu of the Central and State levies such as Excise, VAT and service tax — so that “the transition is smooth and painless both for the taxpayer and the administration,” Mr. Mukherjee said: “We are agreeable to the adoption of a dual rate structure for goods at the inception of the GST…Our request to the States will be to consider keeping the same rates i.e. the lower rate for the SGST at 6 per cent, standard rate at 10 per cent and services at 8 per cent.”
This mutually supportive approach, he said, would ensure a single rate for the CGST and the SGST in the range of 12 to 20 per cent in the first year of the GST's introduction.
Seeking a positive response to the Centre's formula, Mr. Mukherjee said: “The GST — a landmark reform of indirect taxes, is well within our reach. It is now for us to convert it into a reality,” he pointed out.
The States, however, are yet to take a final view on the proposal. “We are trying hard ... Rates are determined almost at the end. Certain rates were proposed by the Centre. We are discussing among ourselves. We can't go public unless we form the final view,” the empowered committee chairman, Asim Dasgupta, told reporters after the meeting.
At the meeting, Mr Mukherjee announced that the Centre would fully compensate the States for the revenue loss on account of the CST (Central Sales Tax) reduction in 2009-10 and promised to “step up the amount of compensation recommended by 13th Finance Commission should the need arise, based on a mutually agreed formula” for any revenue loss incurred on account of GST adoption.
Mr. Mukherjee proposed the setting up of an empowered group headed by Unique Identification Authority of India Chairman Nandan Nilekani, with joint representation from the Centre and States, to select the appropriate IT process to implement the new indirect tax regime.
