The race to implement a countrywide goods and services tax (GST) has entered its final lap.
Finance Minister Finance Minister Pranab Mukherjee on Wednesday proposed a three-rate structure for the GST, which if adopted through an impending constitutional amendment, can dramatically alter tax administration by giving a one-shot solution to a welter of levies such as excise, value added tax and octroi.
At a meeting with state finance ministers, Mukherjee proposed a rate structure under which goods will attract a maximum levy of 20 per cent, services 16 per cent and essential items a concessional 12 per cent. A broad consensus has been thrashed out.
The peak effective rate or the overall weighted average rate will be about 15 per cent.
Mukherjee also proposed the constitution of an empowered group chaired by Nandan Nilekani, chairman of the Unique Identification Authority of India (UIDAI) to hammer out an appropriate technology solution for its implementation.
A Constitution amendment Bill to give effect to the structure is likely to be introduced in the monsoon session of Parliament that begins July 26.
The Centre and states will evenly share the revenue from GST. The government proposes to roll it out from next April.
This means that the Centre will collect 10 per cent and the state where it is sold will collect another 10 per cent for a good that attracts a 20 per cent GST.
Likewise, for services, the Centre and the states at which the service in question is rendered will collect 8 per cent each as GST.
The Centre plans to have a corpus from which states that lose out revenue as a result of the simplification are compensated. Mukherjee said the Centre was open to setting up a corpus higher than the Rs 50,000 crore recommended by the 13th Finance Commission.
“GST, a landmark reform of indirect taxes, is well within our reach. It is now for us to convert it into reality,” the finance minister said.
West Bengal finance minister Asim Dasgupta, who is the chairman of empowered committee of state finance ministers, said “there has been remarkable progress and a there is a convergence process between states and Centre.”
The Centre has also agreed to fully compensate the states for their revenue losses on account of a reduction in the Central sales tax in 2009-10.
The state finance ministers, scheduled to meet next on August 4, will decide on the final rates after consulting their respective chief ministers.
Alchohol and petroleum products would be kept outside the GST ambit, Dasgupta said.
Experts welcomed the move, but said its success would depend on ironing out differences among states.
“The success hinges upon the states agreeing to the mirror their rates with Central rates, with some binding mechanism,” said Pratik Jain, Executive Director at consulting and tax advisory firm KPMG .