A task force under the 13th Finance Commission has proposed a single 12% rate for the ambitious goods and services tax (GST) system that is expected to come into force next year.
The proposal, if adopted, 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 faces political hurdles, as it could rob the state governments of their discretionary fiscal power.
The Finance Commission, constituted once in every four years to recommend how the Central government should share fiscal resources with states, would shortly submit the task force report to the Finance Ministry, said an official.
The 12% rate will have a central component of 5% and a state component of 7%, according to the report reviewd by HT.
“This has the potential to increase the combined tax revenues of states by an estimated Rs 70,000 crore over a period of five years," the report said.
This is different from the structure proposed by an empowered committee of state finance ministers that had proposed two rates—a lower rate for essential items and a standard rate for general goods.
The task force has recommended the creation of a Rs 30,000-crore corpus to compensate states for revenue losses after shifting to the new regime.