13th Finance Commission to assesses impact of GST

In order to understand the change in the fiscal scenario from 2010, when the goods and services tax is expected to be introduced, the thirteenth Finance Commission (TFC) has commissioned a study on the new tax. The main objective of the study is to assess the impact of GST on the Centre and states? tax kitty and accordingly, come out with a new basis for devolution of taxes between the two.

?With GST expected to subsume excise duty, service tax and a number of state levies, the TFC will have to review the formula for the devolution of taxes between the states and the Centre accordingly,? an official source told FE.

The report is slated to be submitted to the TFC by November this year, after which it will begin working on its own recommendations.

But, as the exact model and rate of GST in India is yet to be finalised, the Finance Commission has decided that for the purpose of the study, it will use the dual model of the tax and a rate of 15%.

While the empowered committee of state finance ministers has suggested a dual structure for GST with separate taxes at the Centre and the state level, the finance ministry is still looking into the feasibility of such a model.

As part of the terms of its reference, the thirteenth Finance Commission has been entrusted with the task of preparing a roadmap on the GST. It has also been asked to evaluate the impact of the proposed tax, including its effect on foreign trade. The commission?s period of study will cover the five years from April 2010 to March 2015.

Being a statutory body, the views of the TFC will also be taken heed of when the finance ministry finalises the structure of GST.

The commission, headed by former finance secretary Vijay Kelkar, has also roped in a number of research institutes to conduct studies on a number of issues such as sustainable development with environmental responsibility.

All the reports are slated to be submitted to the commission by November 2008 by when it will also wind up its deliberations with state governments and the finance ministry. It will then begin working on its recommendations, which are to be submitted to the Centre by 31st October, 2009.