Creating a Centre-state combined Goods and Services Tax (GST), as we now find from the nature of negotiations, will be like sowing the seeds of a perennial political potboiler. Negotiations have reached a cul-de -sac. It is not a question of delay any more .

If the Centre concedes everything that the increasingly demanding states insist upon , GST will be so fractured that it will neither achieve a common market nor simplicity, nor revenue buoyancy. It will be a cure worse than the disease. The same issues of fiscal autonomy, compensation of losses for losing Central Sales Tax (CST), bringing in petroleum, alcohol, octroi, etc under the purview of GST are being raised again and again.

Even after seven foreign trips by states' Finance Ministers to see how GST works all over the world, they raise fresh issues of complete control of small industries, and a certain percentage of inter-state GST apart from their own revenue. Gujarat wants two per cent. Once it's conceded, all states will "wish for a piece in hand".

The question of loss of revenue is perplexing since the Empowered Committee and the Centre have been announcing from the house top all along that the GST will increase revenues hugely and there will be growth to the extent of one per cent GDP. The most intractable demand is that the compensation package should be in the Constitutional amendment, which rules out all subsequent negotiations. This impasse can be solved if we change the model of the GST as below.

The principle is that all indirect taxes on goods and services (except customs) would need to be subsumed into the GST at the Central and state level separately by enumeration. Central excise and service tax are to be combined at the central level to make it central GST. At the state level, it will be an amalgamation of sales tax (present Value Added Tax or VAT) and some existing state taxes including some state service taxes .

To elaborate, Central Excise, additional excise duties, service tax, and all cess and surcharges will be subsumed into the central GST.

The state GST will subsume the existing VAT, stamp duty, vehicle tax, taxes on goods and passengers, tax on electricity, entertainment tax, entry tax, luxury tax, taxes on lotteries, betting and gambling, purchase tax as well as all state cess and surcharges.State GST shall not contain service tax which is now being levied by the Centre. The Centre will distribute the proceeds from service tax to the states as now. However, since the state VAT will also combine taxes on lotteries and entertainment, which are service taxes, it can very well be called state GST. According to me, this is the best and easiest solution since only minor constitutional change will be necessary for combining central excise and service tax, etc at the Centre and other taxes at the state level.No serious objection can come from the states as they are likely to agree to this model more heartily . At the Central level, it will be a manufacturing tax on goods, which will end at the factory gate, but the service tax part of the GST will go up to the retail stage. However, since the state GST will go up to retail stage, all stages are covered. The main advantage will be the amalgamation, which will lead to the emergence of a simple one-rate tax at the Centre if the Excise Tariff is abolished at one stroke.

At the state level, there can be an inter- state credit of input duty by following the CENVAT method now in vogue at the Centre which the Empowered Committee may choose to modify. Abolition of CST and resultant compensation can be solved by taking an average of last five years' average as was done for VAT. It will be a mere expansion and refinement of VAT which will not be as daunting as is under negotiation now.For, there will be no issue regarding fiscal autonomy, changing rates by states or daily confrontation over control by state or Centre. The level of computerisation will be at a low key which will be more workable.

We must remember that Indian federalism is comparable to that of the US (which does not have GST) and not Canada or Australia.