India Ready For Single Goods And Services Tax

by Lorys Charalambous, Tax-News.com, Cyprus

07 December 2006

Indian Finance Minister P Chidambaram has called for the country's central value-added tax (CENVAT) and service tax to be harmonised, noting that a consensus has emerged for the creation of a national level Goods and Services Tax (GST).

Responding to questions in India's parliament on Tuesday, Minister of State for Finance SS Palanimanickam, supported this, suggesting that such a move would align India with global practices.

"World over, goods and services attract the same rate of tax," he observed.

Palanimanickam referred to a 2004 report of the task force on Implementation of the Fiscal Responsibility and Budget Management Act which stated that: "Stand alone taxation of both goods and services is structurally inconsistent with the scheme of input credit across goods and services which is so vital to eliminating multiple taxation and cascading effects."

Currently, CENVAT is levied on excisable goods which are produced or manufactured in India at a mean rate of 16%. Service tax is levied on taxable services at the rate of 12% of the value of taxable services. It is thought that the two taxes will be merged into a single GST style tax at a rate of 14%. The government is also expected to expand the range of goods and services subject to the tax to include education, healthcare and catering, among others.

A final decision on GST is anticipated after a meeting of the empowered committee on sales tax later this month. The government is aiming to put the new tax regime in place by 2010.

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