Centre, states may try dual GST rates

The government could attempt a limited goods and services tax (GST) with one rate for goods and services at the Centre and another rate for goods and services in states. This would be a precursor to a single GST rate being implemented across the country.

Finance Minister P Chidambaram was expected to hold deliberations regarding implementation of GST, in the ministry and with states once the state elections were over.

Sources told Business Standard several permutations and combinations would be discussed. Advisor to Finance Minister Parthasarthi Shome has already prepared a discussion paper suggesting implementation of the GST in phases. Chidambaram had in the Budget said that the GST would be implemented from 2010.

"An option could be to introduce a limited GST as this can be easily adopted in the present set up without legislative changes. Under this, there could be a single rate for excise and services in the Centre and another rate for services and value added tax at the level of states. The excise duty in this structure would be limited only up to the stage of manufacturing," sources said.

Even tax experts contend that a limited GST is feasible. According to S Madhavan, executive director & head, indirect tax practice at PricewaterhouseCoopers, the limited GST will amount to "dual VAT" as has been introduced in countries like Canada and Brazil.

"There could be a single rate of 16 per cent for excise duty and service tax at the Centre in keeping with the government's move to gradually align the excise duties to 16 per cent. The rate at the level of the states could median towards 12 per cent, which is the present top slab under VAT. We could have this structure in place until 2010 after which the mechanism should be in place for a single unified rate at both the Centre and states," he said.