NEW DELHI: The Budget is set to unveil the road map for the most critical tax reform that the UPA has committed itself to—the unified goods & services tax (GST). The road map is based on the recommendations made by the empowered committee of state finance ministers.
The committee has submitted its report to the Union finance ministry, suggesting a dual GST structure—a single rate for services and two rates for goods, one at the Centre and other at states. GST, which is proposed to kick-in from April 1, 2010, will integrate most of the indirect taxes on goods & services at the state and the central level.
The empowered committee’s report is largely based on the recommendations made in November 2006 by the joint working group (JWG) on GST.
The broad contours of the model have been agreed upon and given to the Centre. However, a revenue-neutral rate—the rate at which states don’t lose current revenue as they transit to the new system—is yet to be worked out, a source said.
The JWG report had suggested that states should tax intra-state services while inter-state services should remain with the Centre. Petroleum products, including crude, high-speed diesel and petrol, may remain outside the ambit of GST. At present, these products are excluded from the value-added tax regime and state governments levy sales tax on them that varies from 25% to 33%. The report had also mooted elimination of the area-based and sectoral excise duty exemptions that are being given by the Centre.
While some key elements have been agreed upon, the details of the model will be finalised after discussions with the states. Some state governments have also sought a compensation package to move to the GST regime. But this is likely to be resisted by the Centre. A draft white paper would be brought out after discussions with the industry and trade associations after finalisation of all the details of the model.
The fact that the UPA government is serious about ushering in the GST regime is also reflected in the terms of reference of the 13th Finance Commission. The commission, set up recently, will factor in a GST framework while making recommendations for the transfer of central tax revenues to states. The commission is expected to give its report by 2009 end.
The committee has submitted its report to the Union finance ministry, suggesting a dual GST structure—a single rate for services and two rates for goods, one at the Centre and other at states. GST, which is proposed to kick-in from April 1, 2010, will integrate most of the indirect taxes on goods & services at the state and the central level.
The empowered committee’s report is largely based on the recommendations made in November 2006 by the joint working group (JWG) on GST.
The broad contours of the model have been agreed upon and given to the Centre. However, a revenue-neutral rate—the rate at which states don’t lose current revenue as they transit to the new system—is yet to be worked out, a source said.
The JWG report had suggested that states should tax intra-state services while inter-state services should remain with the Centre. Petroleum products, including crude, high-speed diesel and petrol, may remain outside the ambit of GST. At present, these products are excluded from the value-added tax regime and state governments levy sales tax on them that varies from 25% to 33%. The report had also mooted elimination of the area-based and sectoral excise duty exemptions that are being given by the Centre.
While some key elements have been agreed upon, the details of the model will be finalised after discussions with the states. Some state governments have also sought a compensation package to move to the GST regime. But this is likely to be resisted by the Centre. A draft white paper would be brought out after discussions with the industry and trade associations after finalisation of all the details of the model.
The fact that the UPA government is serious about ushering in the GST regime is also reflected in the terms of reference of the 13th Finance Commission. The commission, set up recently, will factor in a GST framework while making recommendations for the transfer of central tax revenues to states. The commission is expected to give its report by 2009 end.
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