Billed as one of most comprehensive tax reforms initiatives since Independence, the government is likely to announce the final roadmap to implement a countrywide goods and services tax (GST) in the coming budget expected early in July.
GST, which makes taxes on goods and services fit into a simplified framework to substitute for a maze of current taxes like octroi, sales tax and the value added tax (VAT), is proposed to be implemented from April 2010.
Finance minister Pranab Mukherjee is due to meet state finance ministers on June 11 as part of pre-Budget consultations and would discuss the states’ preparedness to roll out the GST.
About 150 countries across the world have introduced GST or Federal VAT in one form or the other. The GST rate in various countries ranges from as low as 5 per cent in Taiwan to as high as 25 per cent in Denmark.
A joint working group set-up by the Empowered Committee of State Finance Ministers has recommended a dual GST system for the country, one each for the Centre and the states.
Finance Ministry sources said that central sales tax (CST) would be cut by another one percentage point to one per cent this year and eventually abolished after a full-fledged rollout of GST.
Although the GST rate is yet to be decided, experts believe it could be around 14 per cent.
“Consultations are underway on the compensation for losses, if any. There is considerable progress in preparing a roadmap for introducing the GST with effect from April 1, 2010,” an official said.
As part of the compensation packages, state governments are likely to be empowered to collect tax on 44 new services, besides 33 existing services. Details of the compensation are still being worked out.
The implementation of GST would also require an amendment to the Constitution at the Central level and legislative changes at the state level to enable state governments to levy services tax, which is currently only under the Centre.