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Corpus to push GST regime

business Updated: Jan 27, 2011 23:28 IST
HT Correspondent

The government is likely to announce a string of measures, including a compensation corpus to incentivise states to migrate to a countrywide goods and services tax (GST).

Sources said the Centre was open to offer compensation higher than the Rs50,000 crore recommended by the 13th Finance Commission to assure states that the Central budget would take care of any revenue loss to states arising out of migrating to the new regime.

"The fund would be set up for five years, with the Centre assuring a compensation of about Rs15,000 crore every year to states for any loss in revenue," an official said.

GST is India’s most ambitious indirect tax reform plan, which aims to stitch together a common market by dismantling fiscal barriers between states.

Five-year guarantee

The Centre plans a compensation of about Rs15,000 crore every year to states for any loss in revenue for five years


The Centre was open to offer compensation higher than the Rs50,000 crore recommended by the 13th Finance Commission

The original deadline of April 1, 2010, for roll-out of GST has already been missed and it now appears that new deadline will be set at April 1, 2012.

Currently, states and the Centre tax goods independently. If adopted, GST can dramatically alter tax administration by giving a one-shot solution to a welter of levies such as excise, value added tax and octroi.

However, its implementation has faced political hurdles as it could rob state governments of discretionary fiscal power.

The official said the Centre is working at a "political level" with states for countrywide roll-out of GST, but it may take some time to arrive at a consensus on the new indirect tax regime.

The Centre has proposed a three-tier GST structure.

As per the proposal, GST will be levied at two rates on goods — a concessional 6% on essential items and 10% for others — while services will attract 8% GST.