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Goods and service tax may be at 20%
July, 11th 2006
Kelkar, Shome panels' recommendations may be left out. 
 
The proposed model for the general goods and service tax (GST) is not likely to be based on the recommendations made by the Kelkar committee and the tax committee for the 10th-Five Year Plan headed by Parthasarthi Shome. 
 
It is also expected that the GST rate will be at 20 per cent or more. 
 
The suggestions made by the Shome committee and the Kelkar committee are restricted to the Concurrent List and would require extensive constitutional amendment. Since the deadline for GST is 2009-10, we are trying to see how best we can introduce the GST within the existing framework, an official said. 
 
The matter was discussed at a meeting convened by Finance Minister P Chidambaram last week. Ministry officials said a draft paper on the proposed outline for the GST was likely to be ready within the next one month. 
 
Officials said efforts would be made to try and have the GST rate comparable to the international GST rate of 20 per cent. 
 
At present, the effective value-added tax at the level of the states is around 17 per cent (inclusive of the excise duty on manufactured goods and the central sales tax), while the excise duty is 16 per cent. Hence, the combined tax at the Centre and the states is 33 per cent. This has to be brought down to 20 per cent, which could entail a huge revenue loss for the government, an official said. 
 
In its report, the Kelkar committee had mooted new legislation called the Indian Goods and Services Act to replace the Central Excise Act, and the service tax levied under the Finance Act 1994. The new legislation would provide a well-defined negative list of goods and services for exclusion from the tax net. 
 
It had also recommended that the central GST liability should be based on the in-voice credit method ie. allow credit for tax paid on all intermediate goods or services on the basis of in-voices issued by the supplier. 
 
The Shome committee, in its report, had said the value-added tax on services should be fully integrated with the VAT on goods, both in its design and administration, with an appropriate mechanism to set off service input tax against goods output tax and vice-versa. 
 
A destination based, invoice credit method, dual VAT one at the central level and another at the level of states comprising both goods and services could be envisaged by the end of the 10th Plan, the report had said.
 
 
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