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GST: Empowered Committee to decide on rate soon
September, 19th 2011

Kerala Finance Minister K. M. Mani said here on Sunday that the Empowered Committee on Goods and Services Tax (GST) would soon decide on whether to go in for one or two rates of GST in the country.

Mr. Mani, who is a member of the Committee comprising of State finance ministers, said in an article released for publication after the Committees visit to European Countries to study the tax system that the decision would be taken after reviewing various study reports and the tax rates in foreign countries.

There were divergent views on whether India should have one or two rates of tax, and rates proposed ranged from 11 to 20 per cent. A higher rate for general goods and a lower rate for essential commodities were under discussion. The Union Finance Ministry had taken the stand that if a single rate was to be adopted, it should be 16 per cent.

Mr. Mani said that the rising importance of the service sector in the gross domestic product pointed to the need for merger of the tax on goods and services in the form of GST. This would be of special benefit to Kerala as the service sector was contributing more (60 per cent) to its economy.

He said that the committee had discussions with the Organisation for Economic Cooperation and Development (OECD) on the outcome of introduction of GST in European countries. OECD experts opined that a change over to GST would help to speed up economic growth. It had been estimated that introduction of GST in Canada had helped to increase the rate of growth by 1.4 per cent.

The GST system had contributed considerably to economic growth, increase in production, price control and consumer protection in the European Union. The Sales Tax system led to tax on tax. The GST system eliminated this by providing for input tax credit. The tax was only on value added and this reduced tax burden. Prices would come down as tax on tax is avoided.

The Minister said that one of the major gains on introduction of GST in India would be in inter-State trade. It would render the trade transparent and easy since a unified rate would apply to all goods and services. It would also help to streamline transport of goods across the country, as tax system based on destination principle. The tax structure would become simple and easy to implement as a single tax replaces excise duties, service tax, countervailing duty, special additional customs duty and cess at the Central level and value added tax, luxury tax, tax on lotteries, entertainment tax, entry tax, cess and surcharge at the State level.

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