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A primer on the new tax

business Updated: Jan 07, 2010 20:53 IST

What is GST?
It is a national uniform tax levied across the country on all goods and services.

Why is it required?
The indirect tax system in India is currently mired in multi-layered taxes levied by the Centre and state governments at different stages of the supply chain such as excise duty, octroi, central sales tax (CST), VAT and service tax among others. In GST, all these will be subsumed under a single regime.

When will it be implemented?
The original plan to roll out the new regime was from April 1, 2010. That seems unlikely due to lack of sufficient preparation. The finance commission has proposed implementing it from October 1, 2010. The state finance ministers will decide on Friday on a consensus date for rolling out the regime.

What would be the GST rate?
The finance commission has proposed combined rate of 12 per cent. Effectively, this means every good will carry an indirect tax levied at 12 per cent. Of this 7 per cent will be imposed by states and 5 per cent by the Centre. The states have not agreed to this rate.

What about prices?
The finance commission estimates prices of agricultural goods will increase between 0.61 per cent and 1.18 per cent more than 1 per cent.

Will states not lose revenue?
The finance commission estimates that GST has the potential to increase the combined tax revenues of states by Rs 70,000 crore.

How will states be compensated?
A Rs 50,000 crore corpus is likely to be set up