According to the report of the commission’s task force
on GST released today, public services by government,
unprocessed food products and education and health
services provided by non-governmental agencies will be
exempt from the tax. Railways, post and telegraph,
banking and insurance and PSUs will, however, come under
the GST.
To allay states’ concerns, the task force also proposed
that they be allowed to retain stamp duty (revenues from
which were Rs 39,000 crore in 2007-08) in the first year
of GST before being phased out in the next three years.
Further, the Centre will create a compensation fund with
a Rs 6,000-crore outlay each year for five years. The
fund will not lapse and at the end of five years, the
amount in the fund will be distributed among states as
per the division formula. But states will have to give
up taxes on vehicles, passenger transport, electricity
and all cesses and surcharges besides octroi and entry
tax.
The task force is, however, keen that the GST regime be
implemented from October next, ie with a delay of six
months. The government had announced it would implement
GST from April 1, 2010.
The real-estate sector will be integrated into the GST
framework by subsuming stamp duty on immovable property
levied by states. This will facilitate input credit and
eliminate the cascading effect of the tax. At present,
such transactions attract only stamp duty at the output
level, whereas the output incurs taxes like VAT on
construction material and service tax on specified works
contracts.
All businesses with an annual turnover of Rs 10 lakh and
above will be brought under the tax net. Tax benefits
for special economic zones will go, as these will become
redundant in the new regime where exports would be
zero-rated.
The task force had arrived at a revenue neutral rate of
11 per cent, but proposed a higher rate of 7 per cent
for states with a provision to transfer moneys
equivalent to 2 per cent of the tax to local bodies.
Emission fuels, tobacco products and alcohol will be
subject to a dual levy of GST and excise, without any
input credit for excise. However, industrial fuels
should be subjected only to GST (both Central and
states) with the benefit of input credit like any other
intermediate good.
