Carrying forward the reforms in two critical and complementary areas of taxation, the finance ministry is likely to make further announcements regarding the goods and services tax (GST) road map and take forward the phase out process of central sales tax (CST) in the forthcoming Budget.
The government in Budget 2008-09 may announce the likely rate and structure of GST, which is expected to be finalised when the empowered committee (EC) of state finance ministers meet next Monday. While the EC has already decided on a dual structure of GST, it is likely to finalise the GST rate in its next meeting. Sources said the overall incidence of the tax would be at about 28%.
The final report of the EC is likely to be presented to the finance ministry by February.
Also taking ahead the CST phase out, the government is likely to announce another 1% reduction in the tax rate in the coming Budget. The tax on inter-state sale of goods, which is currently being levied at 3%, against the original rate of 4%, will be further lowered to 2% and will be completely withdrawn by 2010-11 when a national GST enters the implementation phase.
As part of the compensation package, the government is also likely to announce levy of service tax by states on about five services in Budget 2008-09. These would include services provided by private educational institutions, unaided health institutions and hospitals, except below poverty line cases, amusement parks and rotaries who certify legal documents on which they would levy service tax.
These services were part of the list of 44 new services along with 33 existing services that were given to the states by the Centre as part of the compensation package for CST phase out, decided in January this year.