Goods tax to be 20 percent, essential commodities levy lesser

NEW DELHI - Finance Minister Pranab Mukherjee Wednesday said the country can have two goods and services tax (GST) effective from April 1, 2011.

He proposed a three-tier structure during the first year of introduction of the new indirect tax regime under which the central government will keep the tax on essential items at 6 percent, for other items the standard rate would be 10 percent, while for services the levy would be 8 percent.

The states too would impose a similar quantum of tax under the three categories, while the structures would be eventually merged, he added.

“We are agreeable to the adoption of a dual rate structure for goods at the inception of GST. In the year of introduction (April 1, 2011), the government proposes to keep the CGST (central goods and services tax) lower rate for goods at 6 percent and standard rate at 10 percent,” said Mukherjee.

“The services will be charged at 8 percent,” the finance minister added, addressing the empowered committee of state financial ministers, which has been the key deliberating forum on the issue.

India Inc has been clamouring for uniformity in the central and state tax regimes, which taken together can be as high as 30 percent, and results in rampant evasion.

As per the initial understanding between the states and the centre, the state goods and services tax (SGST) will also be kept at the same levels resulting in a single rate for CGST and SGST in the range of 10-12 percent.

“The peak effective rate will be about 15 percent which will be quite acceptable to the trade and industry. Eventually, it will settle down to a level of 16 to 18 percent for both CGST and SGST which will mean an effective rate of 12 percent,” said Mukherjee.

In the second year of implementation of GST, the standard rate for SGST and CGST may be reduced to 9 percent retaining the rate for essential items at 6 percent.

And during the third year of its existence, the GST rates will be standardised at 8 percent for both goods and services both at the central and state level.

“Thus, in a phased manner, we will be able to achieve a single CGST and SGST rate for both goods and services,” said Mukherjee.

The list of 99 items exempted under the present tax regime will continue to enjoy exemptions under the CGST and SGST.

The finance minister also said that states would be compensated as per the recommendations of the 14th finance commission for any revenue loss.

All central and state taxes like excise, value added tax (VAT) and service tax will be rolled into GST once the new regime comes into effect.