According to sources, the Rao committees proposals would now be discussed by the empowered committee at its meeting on September 19 here.
However, the central government and the committee led by Jammu and Kashmir finance minister Abdul Rahim Rather, which have so far been discussing a single state-level GST component with only a narrow band of 2-3% to accommodate states fiscal autonomy, is unlikely to accept the broad range proposed by the Rao panel, sources familiar with the matter told FE. Such changes in levy of VAT by states have made it extremely difficult to project revenue collection figures for five years, which is essential to arrive at a revenue-neutral rate for the proposed state component of GST, said a source, who asked not to be named.
The Centre, which had initially pitched for equal RNRs for both itself and the states, has now come around the view that the states rate could be a bit one percentage point or so higher. The Centre, keen to get the states on board for the tax reform, is making many concessions to achieve its end. But it wants the combined GST rate to be low enough for industry to flourish. Both components of GST will apply on roughly the same base.
The empowered committee, sources said, was likely to commission more studies on the possible revenue-neutral rate of GST. It is also likely to deliberate on what might be an appropriate base year for making projections. Many agencies that have pondered over RNR in the past have not only varied in their proposals but also have taken different base years for their projections.
One bottleneck that has cropped up in the implementation of GST is the unwillingness as well as unpreparedness of Uttar Pradesh and northeastern states to adopt the unified indirect tax regime at the same time as the rest of the country. These states have demanded a more relaxed schedule to adopt GST because of their lack of IT infrastructure.
Some states opting to adopt GST at a later stage will lead to distortions as this would make it difficult to give input tax credit to businesses and traders involved in inter-state trade, said another person privy to the development.
However, most of the states have accepted the proposal to keep a Rs 25-lakh annual turnover threshold for bringing businesses under GST. At this level, about 65% of traders will go out of the GST net.