States agree to dual GST by 2010

A key milestone towards indirect tax reform in the country was achieved today when state governments approved the introduction of a nationwide dual Goods and Service Tax (GST) from April 1, 2010.

The dual GST will operate at two levels "" the Centre and states. The tax rate has not been finalised yet.

A decision on whether non-VAT items like petroleum goods and alcohol will come under the new levy will be taken next month.

"We will recommend the adoption of dual GST to the central government. The dual GST model will reduce the incidence of indirect taxes on products and services," said Asim Dasgupta, West Bengal finance minister and chairman of the empowered committee of state finance ministers.

"The attempt is to integrate and subsume as many taxes on consumption and services as possible and feasible," he said, adding that there will be no double taxation.

The final GST roadmap is expected by December 20, after which it will be sent to the Union finance ministry.

Under the dual GST model, there will be more than four slabs of tax on goods and services.

"The new point is that states will tax services. My expectation is that the service tax levy will continue to be in the range of 12.36 to 12.5 per cent," said S Madhavan, indirect tax leader, PricewaterhouseCoopers.

Currently, the central government levies excise duty at various rates like 16, 12 and 8 per cent.

It also levies 12.36 per cent tax on around 100 services.

States do not levy or collect service taxes, but get a share from the Centre's collections. It is now proposed that states will keep the entire collection from 33 services from this year.

Another 44 proposed new services will be given to states for collection and appropriation as part of compensation for central sales tax phase-out in 2010.

Parliament is required to amend service tax regulations to allow states to levy taxes on services.