FM proposes three tier tax structure for common Goods and Service Tax
merisarkar news service
New Delhi, July 21, 2010
20 and 12% slabs for goods, 16% for services
Finance Minister Pranab Mukherjee has proposed to have Goods and Services tax, GST, at the central and state level from April first next year. Addressing the empowered group of ministers in New Delhi on Wednesday he revealed his proposal of having a three tier GST Tax structure.
He proposed a tax rate of 20 per cent on goods and a rate 16 per cent on services. However he proposed a lower tax slab of 12 per cent on some special goods.
He made it clear that during the first year of introduction of the new indirect tax regime, the central government plans to keep the tax on essential items at 6 percent. The tax on other items will be at the standard rate of 10 percent.
For services, the levy would be 8 percent. He added that the states too would impose a similar quantum of tax under the three categories, while the structures would be eventually merged. Corporate bodies have been demanding for uniformity in the central and state tax regimes, which when taken together can be as high as 30 percent, and result in rampant evasion.
Under the proposal, 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 in the next three years.
Mr. Mukherjee advocated that 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.
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.
In the third year of its existence, the GST rates will be standardized at 8 percent for both goods and services at the central and state level. He said that 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.
