After years of negotiations, arguably the country's biggest tax reform has likely cleared most of its hurdles and its rollout appears to be on track for its intended April 1, 2017 target.
When introduced, GST will be a single tax that will replace almost all state and central level indirect taxes and levies such as sales tax, service tax, excise duty, etc.
Yesterday, a meeting of central and state finance ministers took place where details on issues such as contours of the "revenue neutral rate", which will become the benchmark tax rate for goods and products across the country, were thrashed out.
Importantly, states urged the Centre to meet their expectations on subjects such as the minimum threshold of revenues [for small establishments] below which Centre would have no taxing authority, as well as a promise for complete revenue loss compensation.
Sources told CNBC-TV18's Sapna Das that the impact of yesterday's meeting has already been felt: the Centre has decided to tweak the Model GST Bill to clearly outline the compensation loss clause. The government has also dropped the proposal to levy 1 percent entry tax on transmit of goods from one state to another. A Cabinet nod will sought to this effect soon.
"The 1 percent tax demand loses its relevance once the government has assured five years' compensation on revenue loss to states," Sachin Menon of KPMG told CNBC-TV18. "In any case the demand was not justified."
The demand was first raised by manufacturing states such as Tamil Nadu and Gujarat, which are said to face an immediate loss from GST's rollout. (Average tax rates on manufacturing companies are about 30 percent, roughly double that of services companies.)
There is no clarity on whether the central government has agreed to give up control on taxing establishments with revenues below Rs 1.5 crore per annum though Menon said that the suggestion was a good one.
There is some consternation over what the eventual revenue neutral rate (RNR) should be, with some reports saying states are not in favour of the 18 percent standard rate proposed by a panel led by Chief Economic Advisor Arvind Subramanian. An NIPFP study had pegged the GST rate closer to 27 percent.
But Menon said this would not be a contention as the ideal GST revenue neutral rate -- the rate which causes no loss overall to the centre and states' revenues combined -- can easily be calculated once an agreement is reached on which goods and services are to kept within the tax's ambit.
"If the government makes a mistake in calculating the RNR, it will know it within a year's time and the GST Council can then revise it."
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