Panel gathers to set GST rate

Finance ministry and state finance ministry officials gathered in New Delhi on Tuesday for a three-day meeting that will seek to finalise the main rate of the Goods and Services Tax and pave the way for its introduction next April.

The long-delayed tax, which would transform Asia's third-largest economy into a single market for the first time, should boost revenues through better compliance while making life simpler for businesses that now pay a host of federal and state levies.

Prime Minister Narendra Modi, who wants to make doing business easier in India, has said India needed the tax reform to end widespread evasion by businesses and prevent officials from waging arbitrary tax "terrorism".

Last month the GST Council, a decision making body that comprises federal and state finance ministers, resolved key issues on how the sales tax would work and approved draft rules for its collection.

Finance Minister Arun Jaitley expects to get parliamentary approval for bills next month that would set the rate and scope of the GST. The states would also have to approve similar bills in their assemblies.

The GST would do away with levies charged when goods cross state lines, a boon for manufacturers and shippers, and shares in logistics companies including Gati Ltd, VRL Logistics and Allcargo Logistics Ltd gained by between 3 and 4.6 per cent before the meeting.

The finance ministry has proposed four tax slabs, with the highest at 26 per cent for about 20-25 per cent of taxable items. Other slabs included 12 per cent for food and fast-moving consumer goods (FMCG), and 6 per cent for precious metals like gold and for essential items.

If the states agree to its proposal, the standard rate could be set around 18 per cent, said a government source with the direct knowledge of talks. Withdrawing various exemptions in the next budget could help reduce the GST rate later.

A panel headed by Arvind Subramanian, chief economic adviser to the finance ministry, had proposed a "sin tax" rate of 40 per cent for GST on limited items such as aerated drinks, luxury cars and tobacco products.