States on board, GST to roll out from April 2011
New Delhi : It is now almost certain that the goods and services tax (GST), which is to replace the existing VAT, service tax, excise duties and Central sales tax among others, will be in place from April 1 next year. Almost all States have agreed to the proposed GST implementation from April 1, 2011.
Under the GST regime, there will ultimately be a uniform tax rate of 16 per cent-eight per cent for Central GST and eight per cent for State GST. Currently, the combined State and Central levies go up to 30 per cent on some items. The new unified rate will mean that taxes on these will effectively come down, but your service tax, now at 12 per cent, will in effect go up to 16 per cent.
The Finance minister Pranab Mukherjee has proposed a three-year timeline to fully implement the GST. In the first year, there will be a dual-rate GST. The Central GST is proposed at 6% for essential commodities and a 10 per cent standard rate for other goods. States are expected to impose similar levies. As a result, the combined GST on goods will be between 12 per cent and 20 per cent. The tax on services will be levied at eight per cent by the Centre and a similar levy by the States.
In the second year, only the standard rate will be reduced to nine per cent, the others remaining constant. In the third year, all the rates will be brought to a level of 16 per cent for both Centre and States put together.
The Finance Ministry’s assessment is that the peak effective rate taking account of credits for taxes paid upstream-will be about 15 per cent in the first year, settling down to 12 per cent once the full GST rollout happens.
Pranab Mukherjee has set a deadline of August 20 for States to give their final consent on the new duty structure and all other pending issues, including the proposed constitutional amendment. This is to enable him to move the GST Bill in the monsoon session of Parliament.
The empowered group of State Finance Ministers has decided to meet on August 4 in the Capital to thrash out all pending issues. Meanwhile, the empowered group and the Centre in Wednesday’s meeting set a timeline to work on rolling out of the GST architecture. They have decided to create a common GST portal for both Centre and States where all taxpayers above a specified threshold, likely to be Rs. 10 lakh, will directly pay tax. The existing State and Central structure will be used for audit purposes and enforcement issues.
On the major contentious issues, States have agreed to subsume purchase tax in the GST while the Centre has said it will look favourably into the State’s request to continue the Central sales tax, which may be renamed as transaction tax, for another two years. The Finance Minister also said he would look into the empowered groups’ request to keep the threshold lower for north-eastern States where the average threshold at present is between Rs. 2 lakh and Rs. 5 lakh.
The Finance Minister has also promised to fully compensate all States for any revenue loss on account of implementation of GST. He said the Centre would compensate 100 per cent for revenue loss on account of the CST reduction during 2009-10 and the balance outstanding will be released immediately. He asked the empowered group to moot a CST compensation formula for 2010-11.
The Finance Minister also proposed a threshold for compounding for small dealers at a uniform Rs. 50 lakh to Rs. 1 crore turnover per annum for CGST and SGST. This, he said, should result in considerable simplification for small dealers so that compliance is easy and assured.
On exemptions, the Finance Minister has proposed that the 99 items now exempt from VAT under the State GST list may be exempted from both components of GST.
Written by ntnirale on July 28th, 2010 with
comments disabled.
Read more articles on GST.
- [+] Digg: Feature this article
- [+] Del.icio.us: Bookmark this article
- [+] Furl: Bookmark this article