The empowered group of state finance ministers has recommended a dual structure for introducing goods and services tax (GST), in line with suggestions of the joint working group.
?An attempt will be made to subsume or integrate as many taxes on consumption and manufacturing as possible and feasible,? Asim Dasgupta, chairman of the empowered committee, said after its meeting.
Accordingly, the Centre should combine taxes such as excise and service tax into a single GST at the Centre while states should unite VAT and local levies into a state-level GST.
However, the state and central level tax rates would differ and there may be four or more rates. The Centre would have a separate tax for goods, which could be levied at two or more rates. It would also levy a separate tax for services. Similarly, all states would levy taxes at a uniform rate, but there would be a separate tax for goods and services, with possibly different tax rates for goods.
Dasgupta said, ?The tax rate would depend on the requirements of revenue neutrality but there may not be only one rate.?
The Centre and the states would levy GST on the entire production chain. However, they will provide tax credit to companies on the input tax levied by them. ?We will ensure that there is no double taxation under GST,? Dasgupta said, adding that there would be no cascading effect of the tax on industries.
States may also be given the power to levy service tax on as many services as permissible, Dasgupta said. The implementation of all these changes will also require some amount of Constitutional amendments.
In their next meeting, tentatively scheduled for December 20th, states have been asked to give their views in writing on the proposed tax structure. The meeting will also iron out issues relating to tax credit.
The empowered committee will then finalise its report and submit it to the Union finance ministry. Union finance minister P Chidambaram will then take a final decision on the proposed tax structure.