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To align central excise and service tax: FinMins GST signal
January, 17th 2011

Despite some states refusing to change their stance on implementation of the Goods and Services Tax (GST), the Centre plans to signal that it will be moving ahead with the idea by initially aligning central excise and service tax in its forthcoming Budget.

Sources told The Indian Express that the finance ministry is contemplating introducing two rates for services one standard and the other concessional in a move towards alignment of service tax and central excise. Currently, central excise has two rates including concessional rate and standard rate, which is 10 per cent. While services are at present taxed at just one rate of 10 per cent. By having two rates for services too, the Centre plans to synchronise the central excise duty and services tax.

There have been discussions that government services like education and health should be charged at a concessional rate of around 4 per cent while all other services at a higher rate, the sources said. The Centre has failed to bring an end to stalemate in the GST over contentious issues like constitutional amendments, which require the consensus of both states and the Centre.

However, the sources said, the Centre wants to bring in changes that would help in breaking the deadlock. For the purpose, the Centre has also mooted that issues like threshold limit for taxing and exemption list should be worked on in the upcoming Budget.

The Empowered Committee (EC) of State Finance Ministers had, in its draft discussion paper, proposed a threshold of gross annual turnover of Rs 10 lakh both for goods and services for all the states and Union Territories. Further, the draft said, Keeping in view the interest of small traders and small scale industries the threshold for Central GST for goods may be kept at Rs 1.5 crore.

However, the Centre had then expressed its objection to the Rs 1.5 crore threshold. The sources said the Centre is willing to consider a threshold of around Rs 50 lakh and it may be reflected in the Budget. Similarly, the finance ministry is also planning to work on a common exemption limit.

The roll out of the much-awaited new indirect tax regime is in limbo due to lack of consent among states on the basic structure of the GST. The country has already missed the deadline of April 1, 2010, for implementing the new regime and is all set to meet the rescheduled deadline of April 1, 2011.

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