Centre finally gives in, dual-rate GST likely

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In what may be termed a last-ditch attempt by the Centre to form a consensus on the basic structure of the proposed Goods and Services Tax (GST), the government has given its consent to dual rates for goods — one standard and the other lower for essential commodities — proposed by the Empowered Committee (EC) of state finance ministers.Not just rates, the Centre has also acceded to other demands of the states regarding various contentious issues such as subsumption of alcohol, fuel and natural gas in the GST."There has been a discussion and dual rates have been largely agreed upon. We have also agreed that alcohol, petrol, natural gas and electricity duty can be kept outside the GST ambit," CBEC sources told The Indian Express.However, the Centre has put its foot down on certain matters such as subsuming purchase tax in the GST and a common exemption list for goods and services, the sources said.The decision is a major shift from the government's previous stance of bringing in all commodities and taxes under the GST while maintaining a single rate.The Centre was opposed to a dual rate structure for goods because it would have posed problems like a higher revenue-neutral rate of tax, input credit accumulation, increase in refund claims, a demand for lower rate on services among others.It was of the view that commodities such as petrol and diesel can be subsumed in the GST and states can levy additional rates over and above the GST rates. However, this has not been acceptable to the states.With no solution in sight on these issues, the Centre has given in to the EC's demand for providing momentum to the implementation of the new indirect tax regime, which proposes to establish a common market and reduce the cascading effect of various taxes.It proposes to subsume all central and state taxes like VAT, excise, service tax, so as to simplify the indirect tax system.All the same, the structure with so many changes may not remain as simple as it was originally intended. But experts say that a flawed GST would be better than no GST at all as it will pave the way for a major tax reform.As to whether there would be dual rates for services too, the Centre is yet to take any decision, the sources added.The industry, which wanted all goods and services to be brought under the GST, however, may not be too happy with the decisions as they would be at a disadvantageous position in the absence of input tax credit. This would increase the production cost monumentally.

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