States agree on dual GST rates

States have finally reached a consensus on having two basic rates under the Goods and Services Tax, slated to be rolled out on April 1, 2010. There will be one standard rate of taxation and another low rate of taxation for essential commodities.

"A consensus has been reached between state finance ministers regarding the two basic rates of taxation. Some items will also be exempted from the tax and there will be another rate of tax for precious metals like gold and silver," said Asim Dasgupta, chairman of the empowered committee of state finance ministers.

He also added that some small and medium enterprises would stay outside the ambit of GST. The exact rates have not been decided yet. Dasgupta also said the Centre was expected to have a good deal of conformity to the GST structure.

Decisions have also been taken to set up a joint working group to decide on a framework on constitutional amendment for implementing GST and a model legislation for the proposed tax.

"The working group will be set up immediately and the report regarding constitutional amendment will be submitted in a month. It is a small amendment to empower states to levy taxes," Dasgupta added.

The draft legislation was expected to be ready in two months. Dasgupta said this would give the government time to take feedback from stakeholders and amend the legislative structure accordingly.

The joint working group will include representatives from the state and Centre, as well as the law ministry and the Central Board of Direct Taxes.

At a separate meeting, finance ministers of BJP-ruled states discussed the introduction of GST. Former Union finance minister Yashwant Sinha, who attended the meeting, told Business Standard that the states had some concerns whether the introduction of GST would lead to revenue loss and rising prices of essential commodities.

Besides, there were apprehensions about the new regime impacting the taxation powers of the state. "These concerns are state-wise," Sinha said, adding that even Congress-ruled Haryana and UPA-ruled Tamil Nadu have expressed concerns over the proposed tax.

On whether the April 2010 deadline was achievable, Sinha said: "Consensus among states was more important than the date of implementation." He said the BJP-ruled states decided to take up their concerns with the empowered committee and the Union government. Sinha said GST was more complicated than the value added tax, since the latter involved taxation by only the state governments.

Dasgupta has called for a meeting with finance ministry officials on September 22 to discuss the rate of GST.

On being asked whether the GST rollout was possible by the end of the current financial year, Dasgupta said: "It is very possible to roll out the tax structure in 3-4 months, but we don't have a day to lose."