The most radical indirect tax reform planned for the country, the goods and services tax (GST), may be implemented in a dual structure, both at the Centre and states at one go with a combined tax rate of 12%, if the government follows with the suggestions made by the 13th Finance Commission.
The Finance Commission that tabled its report in Parliament on Thursday is clear that the GST ?should not be partially implemented in some states? like in the case of VAT at the time of its introduction.
However, while the Commission has recommended an early introduction of GST with a bargain between the states and the Centre, on current indications it will not be introduced on the scheduled deadline of April 1, 2010, because of differences among the states and Centre on the base of the tax and the applicable rates.
Post-introduction of GST, most of the indirect tax levies like excise and service tax at the Centre and states? taxes like VAT will be subsumed within the structure.
The report stated, ?We recommend that all the elements of the model GST should be implemented comprehensively at one instance.? The commission?s suggestions could well be the final word on various things including GST as the finance minister Pranab Mukherjee has pointed out that the government has accepted the commission?s recommendations.
The task force had estimated that GST would have a tax base of Rs 31 lakh crore and also would require a revenue neutral rate of 12%. The commission commenting about this rate has stated that, “this should be the rate,” in the report.
GST that would be a consumption-based levy would be dual structured, at the Centre and the states and could result states incurring revenue loss to implement GST. In fact, states have been demanding compensation for the central sales tax (CST) reduction from 4% to 2% that was done to pave the way for introducing GST.
Compensation being a subject of great importance, especially for the states, is proposed to be at Rs 50,000 crore to meet such claims of the states in case the model GST is implemented, according to the report.
The model GST, according to the commission calls for subsuming central excise, service tax, all surcharges and cesses and at the states level the taxes to be done away would include VAT, CST, state excise duties, stamp duty, all state cesses, surcharges and entry tax or octroi and luxury tax. It has also suggested that no exemptions should be allowed other than a common list applicable to all states as well as the Centre like public service, health and education and an employer-employee service.