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States such as Madhya
Pradesh, Chhattisgarh , Andhra Pradesh and Gujarat, have proposed a GST rate of
up to 20% that is expected to figure in finance minister Pranab Mukherjee’s
slated meeting with a panel of state finance ministers on Thursday to discuss a
new rollout date for the tax.
But the states’ rate, which is in contrast to the 16% pegged by the Centre and
industry, could hobble the introduction of the tax reform , as the Centre would
share industry’s fears of a high rate slowing down recovery driven by stimulus
measures.
The finalisation of the GST structure has already run into many delays due to
differences between the Centre and states on crucial issues such as the turnover
threshold limit, inclusion of state levies such as purchase tax and compensation
for losses after its introduction. As a result, the scheduled date of April 1,
2010, looks improbable for the tax reform that aims to create a national common
market by replacing indirect taxes such as excise duty, service tax and
value-added tax with a single levy.
If GST is above 16%, it will derail the stimulus package and the industry’s
ability to remain competitive, said R Muralidharan, ED, PricewaterhouseCoopers .
Most states arrived at their GST rate after the government asked each of them to
calculate a revenue-neutral rate by assuming revenues and the tax base under the
current and new tax regime as the same. The revenue-neutral rate for GST would
be unique for each state, depending on their prevailing taxes, taxpayer base and
list of exempt items. “About 80% of states have written that their calculations
indicate that a revenue neutral rate would be in the range of 18-20 %,” said a
finance ministry official.
The calculations were made by including and excluding certain items under the
GST, most notably the recent spike in VAT rate. Andhra Pradesh and Chhattisgarh
increased their VAT rate by 2 and 1.5 percentage points this month while Delhi
hiked it to 5% for 120 items. Others such as Gujarat, Rajasthan, Tamil Nadu and
Madhya Pradesh increased VAT on durables last year.
Besides the rate, the finance minister could also discuss the GST structure when
he meets the Empowered Committee of State Finance Ministers. While states will
table their GST rates, the finance ministry will have its own rate to pore
through as it has asked the National Institute of Public Finance and Policy (NIPFP)
to compile state data and calculate a general revenue-neutral rate.
"We are reviewing the responses of the state governments and we have also
commissioned a separate study," the official, requesting anonymity , said,
adding that the ministry will hold talks with the Empowered Committee before
finalising the exact tax rate. The states’ rate, incidentally , also bests the
12% recommended by a task force set up by the Thirteenth Finance Commission,
though it has no legal sanctity.
Source:
Economic Times, India, dated
28/01/2010
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