Keen to strike a consensus with states on the few remaining contentious issues related to the proposed goods and services tax (GST), the Centre has decided to allow them the flexibility to have a state-level GST within a wide band of 10-15%. The major relaxation by finance minister P Chidambaram reflects the UPA government’s resolve to have a breakthrough in finalising the new Centre-state indirect tax regime through a process of give and take even when Opposition parties that rule in some of the states are staging walkouts in Parliament over several issues including the alleged vetting of the CBI report on the coal allocation scam by senior government functionaries.
Officials privy to the development said that states could levy their component of GST anywhere between 10% and 15%, keeping in mind their revenue considerations. The rate that the Centre would levy is yet to be finalised. The proposal will be discussed at a two-day meeting of the empowered committee of state finance ministers led by Sushil Kumar Modi, deputy chief minister of Bihar, in Mussoorie, Uttarakhand, from May 10.
If the Centre also adopts a comparable rate for its share of GST, the combined rate could go well beyond what has been suggested by various panels. A task force constituted by the 13th Finance Commission had suggested 12%, while a panel on fiscal consolidation led by tax expert Vijay Kelkar had recommended a 16% combined rate covering all existing taxes.
Chidambaram recently said he saw a 70% of chance of the GST getting implemented during the tenure of the UPA-II government. Introduction of GST is key to increasing the competitiveness of Indian industry as it is an inclusive, destination-based tax on consumption that would avoid cascading of taxes.
Experts said the wide band for the state GST rate will address a major concern of states related to their rights on taxation.