The first discussion paper on the goods and services tax (GST) released by the Empowered Committee of State Finance Ministers incorporates some key decisions announced earlier while adding a few new ones. In July, it was announced that there will be a dual structure, with the Centre levying and administering its own GST and the States having their own laws and rates. In effect, there will be two sets of GST, one for the goods and the other for the services, levied at two levels of the Centre and the State on a uniform basis across the country. There would be minimal rate variations and as few exemptions as possible. It has now been decided that there would be two rates for goods and a single rate for services. The rate structure is yet to be decided but, for the tax on goods, the rate is expected to be between eight per cent and 10 per cent for the lower slab and 16 per cent to 18 per cent for the higher slab. There would be a lower rate for items of mass consumption and a standard rate for other goods. The threshold for the State GST covering both goods and services has been fixed at Rs.10 lakh, while that for the Centre’s levy is expected to be around Rs.1.5 crore for goods and higher for the tax on services. In a significant decision, imports of goods and services will be subjected to the GST, both by the Centre and the States. The Centre will levy an integrated GST on inter-State transactions. Transfer of revenue between States will be on a net basis at fixed intervals.

The discussion paper, which will form the basis for further discussions with trade and industry and consumer organisations, is a major step forward but is not quite the road map it should ideally be. While there is a consensus that the GST should be as exhaustive as possible, certain items such as alcoholic beverages have been left out and will continue to be taxed by the States. In a concession that is sure to distort the new indirect tax structure, octroi and other purely local levies have been allowed to remain. The much-needed technical support for infrastructure is expected to be in place only by mid-January. There has been no firm indication as to when the preparatory legal measures, including amendments to the Constitution, will be carried out. More basically, some States are reportedly sceptical and have not come on board. As indicated by the Union Finance Minister, it seems certain that the GST cannot be introduced, as scheduled, by April 1, 2010.

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