Goods & services tax rate may be 16-20%

Faced with a deadline of 2010 for the introduction of the general goods and services tax, there is a realisation that the rate may be marginally higher than anticipated. Latest estimates reveal that it could be between 16 to 20 per cent.

The finance ministry had at the time of the Budget this year, estimated a rate of between 14 to 16 per cent for the tax (GST).

The ministry is preparing a paper on the GST for the consideration of the state governments. The issue is expected to be one of the items on the agenda of the National Development Council meeting to approve the 11th Five Year Plan approach paper later this year.

"The Centre will seek to duplicate the Value Added Tax (VAT) experience for the GST by proposing that states set up an empowered committee of state finance ministers on the issue," an official said.

Sharing or division of the revenue collected from goods and services under the GST would be referred to the 13th Finance Commission, to be constituted next year.

Officials said the broad objective of the government under the GST would be to ensure that there was no loss of revenue, that all states came on board to accept and implement the GST and that its introduction was hassle-free.

"Unlike Value Added Tax, on which several states opted to stay out, the GST cannot be implemented unless all states come on board," an official said while admitting that attaining a consensus for revenue sharing with states under the GST would be more difficult since most of the important revenue-generating services like banking and telecom would continue to remain with the Centre.

The ministry has made some estimates of the possible tax rates under the GST. In case there is a two-tier tax rate "" with one rate for goods and another for services, goods would have a tax rate of 30 per cent while services would have a rate of around 27.5 per cent.

However, if there is a single rate for the GST, then the tax rate including Cenvat, VAT and countervailing duty will have to be around 27 per cent.