Budget 2009-10 has just said the bare minimum that there will be dual GST a Central GST and a state GST. The Centre and the state will each legislate, levy and administer the Central GST and state GST respectively. But the exact nature of dual GST has not been indicated. There are two ways of making it one advocated by Finance Commission and one by the Empowered Committee, tho-ugh the later has not been officially made public.

First Model This Model envisages Central GST as an amalgamation of Central Excise, additional excise duties, service tax and all cess and surcharges. The state GST will combine VAT, stamp duty, vehicle tax, taxes on goods and passengers, tax on electricity, entertainment tax, entry tax, luxury tax, and taxes on lotteries, betting and gambling, purchase tax as well as all state cess and surcharges.

Some of these being service taxes, the name State GST is justified. This agrees precisely with the speech delivered by the chairman, Thirteen Finance Commission in Assocham on June 29, 2009.

According to me this is the best and easiest solution since constitutional change will not be necessary. Even for combining Central Excise and Service tax, etc at the Centre there is no need for any constitutional change since Central excise will remain designed as a manufacturing VAT. This will not go up to the retail stage.

The main advantage will be the amalgamation which will be quite a simple tax if one rate is maintained and no cess is charged extra, not even education cess.

Second Model This Model combines Central Excise (along with additional excise duty, etc.), service tax, sales tax (VAT) and all other state taxes (such as stamp duty, vehicle tax, taxes on goods and passengers, taxes on duties on electricity, entertainment tax, entry tax, luxury tax, taxes on lotteries, betting and gambling, purchase tax as well as all cess and surcharges) together and makes a common base. Thereafter a certain percentage say, 10 per cent is changed by the Centre and say, 8 per cent by the states.

This also will entail the power of centre to levy tax on the common base right up to the retail stage and power of states to charge Central Excise and Service tax. This is supposed to have been recommended by the committee appointed by the Centre and the Empowered Committee. This seems to be under the consideration of the empowered committee and talks are taking place with the states for compensating states for possible revenue loss. Media has been reporting about its possibility. Central governm-t is in favour of it or not is not clear. It has the following drawbacks.

(i) It will need substantial constitutional change, namely, empowering the Centre to levy state taxes in the List-II and empowering the states to levy Union taxes in List-I which is unlikely to be agreed to by all States as they will lose the power to change the rate of tax for their states.

(ii) If the tax base is all combined and made the same, then it makes sense if only one authority (Centre or states) collects it. If it is collected by both Centre and states at different rates (say 10 per cent + 8 per cent), then it becomes worse than the present system of states and Centre collecting tax separa-tely of different tax bases.

From same taxpayer both central and state collectors asking for tax on the same tax base will be quite a nightmare. Canada does not do that.

So on balance the first model is decidedly superior as it does not need constitutional change and it is more viable administratively.