Government proposes 20% GST on goods, 16% on services:

NEW DELHI: Finance Minister Pranab Mukherjee today proposed a three-rate structure for the Goods and Services Tax -which will simplify the indirect tax regime - under which goods will attract 20 per cent levy, services 16 per cent and essential items a concessional 12 per cent.

Mukherjee proposed these rates to the state finance ministers at a meeting here today to evolve consensus over GST that is planned to be implemented from April 1, next year.

All central and state taxes like excise, VAT and service tax will be rolled into GST, once the new regime comes into effect.

The revenue from GST will be shared equally between the centre and states, implying that out of 20 per cent tax proposed for goods, 10 per cent each would go to the centre and the state concerned.

Similarly, in case of services, the revenues would be equally shared between the centre and the state.

Besides the maximum rate of 20 per cent, Mukherjee has also proposed a lower rate of 12 per cent for essential items. This too will be shared euqally between the centre and states at 6 per cent each.

While elaborating on the dual rate structure for goods, Mukherjee said, "The peak effective rate will be about 15 per cent which will be quite acceptable to the trade and industry."

The 15 per cent could be the effective average rate as a result of the dual rates for goods.

The Minister assured the states that the Centre would "step up the amount of compensation recommended by 13th Finance Commission should the need arise, based on a mutually agreed formula."

The Commission, which advises on revenue sharing between the Centre and states, had asked the union government to set aside Rs 50,000 crore to compensate states for the possible revenue loss incurred on account of implementation of GST.
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ET