India likely to exclude fuels, exports from GST territory      

India is likely to exempt petroleum products and exportable goods from a proposed goods and services tax (GST) as the government tries to increase the pace of reforms to ease the tax burden on firms.

The proposed GST, which comes in the place of existing federal and state levies such as excise duty, service tax and value-added tax, could help to slash down the overall tax load of the industry.

A discussion paper including the broad shape of the new tax, released by Finance Minister Pranab Mukherjee stated that petroleum products such as crude, motor spirit and diesel, along with alcoholic beverages would be excused from GST but would continue to attract sales tax and other duties levied at present.

The paper also mentioned that both the federal government and states would have two different GST structures, and small firms with turnover of up to 1 million rupees would be exempted, but it did not mention the rate at which GST would be levied.

Pratik Jain, an executive director at KPMG pointed out that two factor such as, the tax base, and the number of items that are put on the exempted list will influence the GST rate.

"The rates are being debated by the federal and state governments. Any rate, which is more than 16-18 percent may not find acceptance by the industry," he added.

Mukherjee said the new tax could "broaden the tax base and lower the tax rates" if exemptions are cut down.

"They are definitely making progress. GST would smoothen tax administration and increase tax buoyancy, and that is expected to support the entire fiscal situation," said N.R. Bhanumurthy, an economist at National Institute of Public Finance and Policy.

India's fiscal deficit is set to widen to 6.8 % of gross domestic product in the year to March 2010, from 6.2 % in last year, as the government slashes taxes and boosted spending to arouse a slowing economy.