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This
is a major breakthrough since there will be a single tax
applicable for any goods or services all across the
country, except petroleum products. Any changes in the
rate of tax, based on the agreement reached between the
Centre and the states have to be approved by the Centre
and the empowered committee of state finance ministers
formed to sort out Centre-state issues on economic issues.
The
central government to give effect for GST will bring in a
constitutional amendment and this aspect will be
incorporated, sources said.
“Rates
of central GST and state GST once fixed through empowered
committee will be binding on the Centre and state until it
is amended through the same mechanism,” said the then
finance minister P Chidambaram in a letter addressed to
the empowered committee a few days before he moved to the
home ministry.
This
pre-condition is cited as the reason for breaking the
impasse in agreeing on a GST roadmap. Earlier the centre
was saying there would be one single GST that will be
approved by Parliament. State finance ministers did not
agree, saying that it took away their rights to levy tax.
As
a compromise, the central government agreed to dual GST
model - where both the centre and the states can levy tax
on goods and services - but it wanted an assurance from
the states that GST rates will not be tampered
unilaterally.
Now
any state that wants to change the rate of tax has to
approach the empowered committee, which will evolve a
consensus and get further consent from the Centre.
The
Centre wanted this precondition to avoid a repeat of
problems that arose in implementing the value added tax
(VAT) in 2005. Though the states agreed to uniform tax
rates for all products, there have been large deviations
in petroleum, tobacco products and foodgrain, leading to
distortions in the tax structure.
For
example, the agreed tax rate under VAT for foodgrain is 4
per cent. But Delhi government does not tax and Punjab and
Haryana tax at a lower than 4 per cent. Similarly, states
agreed to uniform minimum rates but various local
governments have levied taxes below that rate.
On
Tuesday, the empowered committee of state finance
ministers announced that a dual GST model has been
accepted by both the states and the centre. There will be
two components under this: central GST and state-level GST.
Source
: Business Standard - Mumbai, Maharashtra, India, dated
18/12/2008
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