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Indian GST To Have Three Tier Rate Structure

by Mary Swire,, Hong Kong

26 July 2010

The Indian finance minister, Pranab Mukherjee, has proposed a rate structure for the Goods and Services Tax (GST) to the Indian states, which initially would share proceeds of indirect taxes equally between the states and the centre.

This simplification of India’s complex indirect tax regime is due to be implemented on April 1, 2011; the proposal involves a three tier structure: 20% on goods, 16% on services, and a concessionary rate of 12% for basics.

Addressing the Empowered Committee of state finance ministers in a speech, Mukherjee said the centre wanted to retain half of these revenues for itself and was seeking approval from the states to manage with the other half, subject to a compensation scheme to cover states’ revenue losses in keeping with recommendations. The 13th Finance Commission had requested that INR500bn (USD10bn) be set aside for such compensation.

Mukherjee said the centre was still reviewing exemptions to GST so that exemptions can be aligned. So far, 99 items had been identified for exemption from both centre and state GST. Over time the centre would also like to see the 20% goods tax brought down to 16% to harmonize with the services tax, but this, said Mukherjee, would depend on the levels of revenues generated from the new tax structure.

Empowered Committee Chairman, Asim Dasgupta, told reporters that the states needed to discuss the rates structure between themselves and would give their opinion soon. He added that there was general agreement that petrol, diesel, alcohol and electricity would not be included in the scope of GST.

TAGS: tax | India | law | goods and services tax (GST) | services

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