GST from April 1, 2010: What does this mean?

The country would introduce the goods and services tax (GST) with effect from April 1, 2010, the finance minister, Pranab Mukherjee, announced in the union budget.

States have reached an agreement on the basic structure of GST in keeping with principles of fiscal federalism enshrined in the Constitution, the finance minister said. “Broad contours of the GST model envisage a dual GST comprising of a central GST and a state GST. The Centre and the states will each legislate, levy and administer the central GST and state GST, respectively,” he said.

What happens with GST?

- Multiple rates for goods, single rate for services

- Revenue loss to some states as tax collected in the state where goods and services are consumed

- Place of consumption and supply needs to be defined in a simple manner

- Cumulative incidence of excise and state value-added tax currently at 20-22% of retail sales price

- Dual structure – one rate for Centre, another for State

- Dual structure passed by the Empowered Committee of State Finance Ministers

- GST at Centre may be capped at 10%

- Rates may vary in States

Impact:

- Government to compensate loss to states; five-year compensation program being worked out

- Cumulative incidence of GST expected to be around 18%

- The average for Organisation for Economic Co-operation and Development stands at 17.6%

- Service may be taxed at both Centre and State level now, currently only services at the Central level are taxed