Kelkar calls for uniform GST rate

The proposed Goods and Service Tax (GST) which will replace almost all indirect taxes, including the central sales tax (CST) and the value added tax (VAT) next year should ideally subsume all the major state level taxes, use a single rate, allow for only essential exemptions and eliminate all barriers to trade, according to the Thirteenth Finance Commission.            

A "flawless" GST, according to Vijay Kelkar, chairman of the finance commission, should be identical across states as well as at the centre if it is to be effective.

He said the government would compensate states for any revenue loss on account of the implementation of the GST, a move that will encourage states to go in for the new tax structure scheduled to be implemented from 1 April, next year.    

"I propose that not only the law but also the methodology relating to levy, assessment, collection and appropriation of the GST should be similar across states and the centre," Kelkar said addressing a conference on CST organised by the Associated Chamber of Commerce and Industry. 

Such a unified approach will simplify procedures, eliminate bottlenecks and drastically reduce transaction costs for dealers, enabling them to leverage cost and time gains from the new taxation system. Necessarily, such an approach requires that tax rates for most goods and services be common across the country as should be the list of exemptions and thresholds, he said.

These considerations would need to be kept in mind while considering fiscal autonomy of states. Some states have proposed a mechanism, which ensures that in future, changes in the essential elements of GST are made only with the concurrence of all states and the center. Such a mechanism will provide stability of the taxation regime and suggestions from trade and industry would be welcome on how to move forward on such a proposal.