Indian Finance Minister Pranab Mukerjee has proposed a three tier rate structure for the Goods and services tax. The proposed tax rates are:
- Goods which are not essential – 20%
- Goods which are essential -12%
- Services -16%
If States agree for this and consensus develops, then a bill will be brought in parliament and law will be made w.e.f. 1.4.2011. The above taxes will replace all excise, VAT and service tax, purchase tax,CST etc.The revenue from all the above taxes will be shared equally between state and center.
While elaborating on the dual rate structure for goods, Mukherjee said, “The peak effective average rate will be about 15 per cent which will be quite acceptable to the trade and industry.” Finance minister Pranab Mukherjee also told the empowered panel that the GST should eventually move to a single-rate 16% (8% plus 8%) structure in the third year of its operation. In the second year, the rates are proposed to be lowered to 12% for essential goods, 18% for others and 16% for services
The Minister assured the states that the Center would “step up the amount of compensation for possible revenue loss by states as recommended by 13th Finance Commission (Rs.50,000 crores )should the need arise, based on a mutually agreed formula.”
Some other points to note:
- The service taxes will go up from 10% to 16% but the benefit is that, generally speaking, the businesses should be able to get credit for payment of service tax so that he can pass on the same to ultimte buyer. In present tax regime, trader does not get credit of service tax today against his VAT liability. But tomorrow in the GST regime he will have a good credit mechanism in place whereby services and tax on goods will be available as a credit interchangeably.
- 99 goods which are outside the tax ambit of VAT may be kept as it is.
- In a presentation given to the empowered committee of state finance ministers , Unique Identification Authority of India (UIDAI) Chairman Nandan Nilekani assured that IT infrastructure for GST would be ready in the next six months, that is, by February 2011 — two months ahead of the proposed introduction of GST. In this system, taxpayers will directly deal with one common network, while states and the Centre can do the audit through their respective systems like ACES or TINXSYS.The government will float a special purpose vehicle (SPV) for setting up information technology (IT) infrastructure for the proposed Goods and Services Tax (GST). The SPV, called GST N (Network), will have the Union government, the states and a technology partner as its stakeholders.
- The Centre and the states also agreed to keep petrol, diesel, alcohol and electricity out of GST.
C. R. Venkata Ramani