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Agree on dual goods, services tax structure
September, 17th 2009

With the deadline of April 1, 2010 for the introduction of Goods and Services Tax looming before them, States agreed on Wednesday to have two basic rates for the new tax system, including a standard rate and a lower one for essential commodities, in addition to a special rate for a small list of precious metals.

While there will also be a list of exempted items, the exact rates for the items that would be included in the GST have not been decided.

The new tax system would replace the excise duty and the service tax at the Centre and VAT and local taxes at the State level and is meant to create a common Indian market.

Sources said the standard rate is likely to be 8-9 per cent, while the lower rate for essential commodities would be 4-5 per cent and the special rate for precious metals is expected to be fixed at 1 per cent.

Despite "differences" from States such as the DMK-ruled Tamil Nadu and some BJPruled States such as Madhya Pradesh and Chhattisgarh on several issues including revenue loss, the compensation formula and sharing of the service tax base, the Empowered Group of State Finance Ministers on GST that met here also reaffirmed its commitment to the April 1, 2010 deadline.


Significantly, it also decided to set up a Joint Working Group (JWG) to work out within two months a framework of the necessary amendments to the Constitution for GST implementation as well as a model GST legislation for Centre and the States.

Emerging from a meeting of the Committee, the Group's Chairman and the West Bengal Finance Minister, Mr Asim Dasgupta, said, "We don't have any time to lose.

The JWG report will submit its report to the Empowered Group as soon as possible. We are making all preparations towards that target (of introducing GST by April 1, 2010)."

Admitting that Madhya Pradesh and Tamil Nadu had raised serious reservations on many issues and had called for the intervention of the Prime Minister, he claimed that some of the problems, including those relating to whether there would be one rate or two rates, were resolved at the meeting.

The Madhya Pradesh Finance Minister, Mr Raghavji, cautioned against any haste in introducing GST, alleging that States would have reduced fiscal autonomy and claimed that Rajasthan, Haryana, Chhattisgarh, and Tamil Nadu had also expressed reservations regarding the roll-out of GST from April 1, 2010.


Mr Dasgupta, however, said "States will be given the flexibility regarding choice of goods of local importance," adding that "There is a good deal of conformity between the tax structures of the States and that of the Centre."

"There is good consensus on what is to be included. But this is a continuing process. Discussions will go on," he said. He declined to disclose the exact rates and which commodities would be excluded or included.

Mr Dasgupta added that "We have discussed in detail how the interest rate transactions take place and we have reached a convergence on that for both goods and services."

The JWG will comprise officials from the Centre and states including from the Finance ministry and other Ministries concerned in the Centre as well as the Finance Secretaries and the Commissioners of Commercial Taxes from the States, Mr Dasgupta said.

He said there was no basis for the speculation that foodgrains would be in the exempted category or attract lower tax rates. "We have to reach a consensus'' on the issue, he said.

The Empowered Group will soon discuss with the Finance Minister, Mr Pranab Mukherjee, further issues on goods and services to be covered under the GST and to find out the Centre's position vis--vis the States, Mr Dasgupta said. The GST would be a further improvement over the State-level VAT that also has two basic rates of 4 and 12.5 per cent.

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