Finance Minister Pranab Mukherjee today proposed a three-layer GST structure--20 and 12 per cent for goods and 16 per cent for services--which the states said will consider, giving a much-needed fillip to the already delayed new indirect tax regime.
At a meeting with the states finance ministers here today, Mukherjee proposed two slabs for goods--20 per cent and 12 per cent--and 16 per cent for services, with the Centre and the states sharing the revenue equally. The states agreed to take a call on the proposal and meet again on August 4.
Experts, however, said the burden on consumers will go up if manufacturers refuse to pass on the benefits of the proposed goods and services tax (GST), which will subsume all the indirect taxes like sales, VAT, local levies etc, while industry chambers are divided on the issue.
The proposed structure will be for the first year of the GST regime, with the ultimate motive of unifying all the rates into one--8 per cent each for the Centre and states.
In the second year,the upper rate on goods will be cut to 9 per cent each from 10 per cent. In the third year, the upper rate on goods would be further brought down to 8 per cent each while the lower rate will be hiked to 8 per cent. As such, the combined GST will be 16 per cent, whether on goods or services from the third year.
Mukherjee said converging all rates into one single rate in a phased manner will ensure that transition is smooth and painless both for taxpayers and administration. He explained that peak effective rate will be even lower as GST will do away with cascading effect of the current tax regimes.
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Mukherjee has also assured the states that the Centre is willing to go beyond the 13th Finance panel recommendation on compensation for states. The TFC had proposed a Rs 50,000-crore compensation package for the states for possible loss of revenue following GST rollout.
On their part, the states said they will discuss these proposals and take a call on them. "Rates are determined almost at the end. Certain rates were proposed by the Centre. We are discussing them among ourselves. We can't go public unless we form the final view," empowered committee chairman Asim Dasgupta said.
Mukherjee also gave the Centre's draft on constitutional amendment Bill required for rolling out GST. Dasgupta said the states will discuss the draft and again meet on August 4.
GST, which would replace most of the indirect taxes at the Centre and states levels, was originally scheduled to be introduced from April 1, 2010 but was put off by a year as the Centre and the states could not agree on some aspects.
"GST, which is a landmark reform of indirect taxes, is well within our reach. It is now for us to convert it into a reality," Mukherjee said.
Dasgupta said, "we are trying hard to introduce GST from April 1, 2011." However, some BJP-ruled states expressed doubt whether the new tax regime can come in by next fiscal.