Goods to cost less after GST: Govt

The government on Tuesday said the prices of most goods will decline with the implementation of the proposed Goods and Services Tax (GST). The proposed GST is likely to remove cascading of taxes and thus likely to reduce cost of most goods, Minister of state for finance SS Palanimanickam told the Rajya Sabha in a written reply. The rates of GST is yet to be finalised, he said, adding it will have two components central and state GST. But, initial calculations by the finance ministry point to an overall GST rate of 16%.This rate is, however, l owner than 17-18 % proposed by some state governments.
The Empowered Committee of state finance ministers have asked economic think-tank National Institute of Public Finance and Policy (NIPFP) to work out a revenue neutral rate of GST. However, experts favour a rate of 16%.States will posture... but a 16% overall GST rate 8% plus 8% is something you can live with, said Govinda Rao, director, NIPFP.
Mr Rao said the rate should not be much lower as it could lead to loss of revenue and not very high as it would encourage evasion. He said the group within NIPFP had worked out two alternate rates as sought by the states taking into account a two-slab structure with a lower floor rate on for certain essential items on the lines of current Value Added Tax system.
Mr Rao pointed that if the floor rate is kept very low that the effective rate will have to be higher for revenue purposes. Incidentally, a task force appointed by the 13th Finance Commission had suggested a GST rate of 12%.The Commission, however, has refrained from making a recommendation on the rate. It has proposed a compensation of Rs 50,000 crore to states on account of implementation of GST.
The GST, which will replace the major indirect taxes excise duty, service tax, value added tax and other state taxes with a single levy, will create a national common market that is at present fragmented because of multiple levies. The GST, that was scheduled to be rolled out from April 1,2010 is now proposed to be implemented an year late. The empowered committee of state finance ministers will meet union finance minister Pranab Mukherjee next month to discuss the future course of action on GST.

Economic Times, New Delhi, 10-03-2010.