States converge on roadmap for goods, services tax

A committee of state finance ministers Tuesday were broadly agreed on the roadmap for adopting a nation-wide goods and services tax regime and also converged on the compensation for reducing the central sales tax rate.

'A point of convergence has been reached on the compensation package for cutting the central sales tax,' West Bengal Finance Minister Asim Dasgupta, who heads the empowered group of state finance ministers, told reporters here.

'The goods and services tax model and its roadmap is also being finalised by the empowered committee. We will submit it to the finance Minister (P. Chidambaram) by the end of this month,' Dasgupta said after the panel's meeting here.

Dasgupta, who met Chidambaram later, said the members of the panel also hoped to introduce the uniform goods and services tax by April 1, 2010, by which time the central sales tax regime is proposed to be phased out.

The country has already missed the April 1 deadline for reducing central sales tax by one percent, since there were differences on the extent of compensation to be given to states for the losses they suffer on account of the move.

Dasgupta declined to go into the specifics of the two proposals but said it was for the officials to put some numbers on the compensation package for states. He indicated that there could some budgetary support for the losses as well.

He also said there would be no increase in the value added tax (VAT) rate, which was suggested by the central government to partly compensate the states for the one percentage point reduction in the central sales tax to three percent.

'Yes, there would not be any increase in the value added tax rate now,' he said, adding that the current inflationary trends in the economy did not warrant such a step.

Earlier efforts towards phase-out of central sales tax had ended on a stalemate after states wanted at least Rs.130 billion ($3.3 billion), including powers to tax some new services, as their share of compensation, but not acceptable to the central government.

The broad consensus is to have a dual general sales tax, which will subsume the central taxes like excise duty and central sales tax, as also the value added tax and other local taxes of states.

According to finance ministry officials, around 120 countries across the globe follow the goods and services tax model, but only Brazil and Canada have a dual model as is being proposed in India.

Source : Bombay News - Bombay, India, dated 08/04/2008