In a bid to roll out a ‘flawless’ goods and services tax (GST) regime, the Thirteenth Finance Commission (TFC) is of the view that a single rate of taxation would be most advisable, even though there are interest groups looking at two rate slabs.

Addressing a conference organised by industry chamber Assocham,TFC chairperson Vijay Kelkar stated that a recent study on the impact of GST says that India could gain as much as $15 billion annually once the GST is in place. “Discounting these flows at a modest 3 per cent per annum, the present value of the GST works out to about half a trillion dollars,” he said.

Finance minister Pranab Mukherjee is also expected to lay a roadmap for the launch of the ambitious tax reform in his budget speech next Monday. The regime is expected to kick in from April 1, 2010.

Talking about deliberations within the empowered committee of state finance ministers, Kelkar said that there appears to be an agreement that the best option would be a bare minimum number of rates, at best two, preferably one. “We assume that a single rate structure will find favour with a very limited set of exemptions available for basic food grains, basic education and health services. This single rate will ensure low compliance costs and obviate classification disputes,” he said.

Kelkar also pointed out that preliminary calculations by the task force indicate that the revenue neutral rate of GST could be substantially lower than the combined central and state rates. This analysis, he said, was based on data from about 18.25 lakh business entities for 2007-08.

... contd.