States favour dual goods, services tax

The Centre and state governments could have the power to levy the proposed goods and services tax (GST) with the Empowered Committee of State Finance Ministers favouring such a structure.

The new tax regime that is expected to come into force from April 2010 is likely to have a dual structure — state specific and central.

"After getting the written viewpoints, we will finalise the report. But we hope to send the report to the government by December," Empowered Committee chairman and West Bengal finance minister Asim Dasgupta said in New Delhi on Wednesday.

GST has been flagged off as the next big indirect tax rationalisation measure after the introduction of state-wide VAT.

The government's proposal for the GST is in line with the Vijay Kelkar Committee's report to reform the tax structure in the country.

The GST roadmap is linked to the successful implementation of the timeline for the Fiscal Responsibility and Budget Management Act and the phaseout of the Central Sales Tax by 2010.

Officials said efforts would be made to try and have the GST rate comparable to the international GST rate of 16 per cent. At present, the effective VAT at the level of states is around 17 per cent (inclusive of excise duty on manufactured goods and the Central States Tax), while the excise duty is 16 per cent.

In its report, the Kelkar Committee had mooted new legislation called the Indian Goods and Services Act to replace the Central Excise Act and the service tax levied under the Finance Act 1994. The new legislation, the committee proposed, would provide a well-defined negative list of goods and services for exclusion from the tax net.

It had also recommended that the central GST liability should be based on the invoice credit method that would allow credit for tax paid on all intermediate goods or services on the basis of invoices issued by the supplier.

Source : The Hindustan Times, India, dated 28/11/2007