Asim Dasgupta, finmin officials discuss revenue-neutral rate for GST

In a bid to speed up work on the goods and services tax (GST), chairman of the empowered committee of state finance ministers Asim Dasgupta met finance ministry officials on Thursday to discuss revenue-neutral rates for the proposed tax.

GST is expected to have a dual structure with multiple rates on goods at both the Centre and state level. Officials said the two rates being considered are 8-10% for the lower slab and 16-18% for the higher slab. In addition, states will levy a 1% tax on precious metals.

Thursday?s meeting was just a pre-cursor for the brainstorming session that states will have with finance minister Pranab Mukherjee later this month. The empowered committee is set to give its final approval to the proposed GST structure on October 27 when it will also meet Mukherjee to discuss their plans.

With just six months left for the scheduled roll out of GST from April 1, 2010, the Centre is keen to finalise the road map for the tax. While most states have agreed in principle, issues like revenue-neutral rate and lack of ground level preparations have led to concern amongst some of them.

In the latest twist, at the last meeting of the empowered committee on October 8, some states led by Gujarat and Karnataka opposed the roll-out of GST because of inadequate compensation for the withdrawal of central sales tax. With the reduction in the rate of central sales tax to 2%, states claim that they have not been compensated for losses amounting to Rs 11,000 crore by the Centre.

To smooth over this problem, Mukherjee has invited state finance ministers for discussions on Monday. While he has directed the finance ministry to clear all pending claims of states for CST compensation, he is also expected to impress upon them that the original compensation formula should be followed.

?States have to stick to their original plan for CST reduction. Under the compensation formula, they were expected to hike the 4% rate of value added tax (VAT) to 6% over two years. In addition, they had also agreed to levy VAT on textiles,? a finance ministry official told FE.