During his Union Budget 2010 Speech, Finance Minister Pranab Mukherjee had pointed out that the prospects for imposing the Direct Tax Code from April1, 2011, was strong. However, he didn’t sound as much confident speaking about the same for the biggest indirect tax reform – The Goods and Services Tax (GST).
But, some progress certainly seems to have been made by the Centre on this ambitious reformist movement. Pranab’da has unveiled a three-rate structure for GST – which is also a three-year plan – which, if all things go well, could converge into a single-rate regime of 16% on all goods and services.
The Proposed three-rate Structure for GST – How does it look like?
The Centre has proposed a bifurcation of GST rates into services and goods separately, to begin with. For services sector, Pranab’da has articulated a constant rate of taxation at 8%. Further, he has screened goods into two varieties – one with a lower rate of 6% for essential items and other with a standard rate of 10%.
The aforementioned taxation rates will to be payable at both the Centre and the State levels – effectively doubling up as a final impact on the consumers.
The Finance Minister has recommended that the effective rate of taxation for the Standard rate goods should be cut down by 1% in each of the two ensuing fiscal years – with the aim to emerge at a convergent price of 8% for both goods and services by 2014. Thus, the GST should eventually move to a single-rate 16% (8% Centre + 8% State) structure in the third year of its operation.
Once a shift to the GST implemented, all other indirect tax levies such as excise, VAT and service tax will cease to exist as they constitute as a component of the broader tax regime.
The Manmohan Singh-led UPA-II government has fast-tracked its path to Reforms from its current stint at the Central government, thanks to the absence of Left party as its coalition partner this time around.
In its second avatar as the government of India, the UPA has approved of several key reforms such as Women’s Reservation Bill, Education Reforms and several Economic reforms such as 25% public shareholding norm, proposed Direct Tax Code, proposed Take-over Code and two biggest reforms ever in the form of UIDAI project and proposed GST regime.