Two-tier structure for GST: RBI

The RBI suggested that a system of concurrent taxation consisting of a state GST and a central GST would be a viable medium-term option. GST is a multi-stage consumption tax imposed on a broad range of goods and services. It is a tax on transactions and end-customers who consume the goods or services. However, the report also pointed out that the component of tax rates of central and the state GST is still to be determined.

Reasoning out its claim that there is administrative support for the two-tier system, RBI said, “the Centre’s administrative capacity vests with the central excise department whereas the state’s have a larger capacity in the form of states’ sales tax establishment.”

The RBI report on states finances talks of various models for GST collection like collection at federal level and sub-national level but goes on to suggest dual level collection as the best suited for the country. The GST is seen as a step towards simplification of the sales tax system and is expected to bring about an efficient and harmonised consumption tax system in the country.

The idea for the GST system was floated by finance minister P Chidamabram in 2005. The finance ministry with an aim to move towards a national level GST that should be shared between the Centre and the states has proposed April 1, 2010 as the date for its introduction. While a decision on this model still needs a lot of deliberation, the Kelkar Committee has already suggested a 20 per cent combined GST rate.

• GST is a multi-stage consumption tax imposed on a broad range of goods and services

• The move will bring harmonised consumption tax system

• A system of concurrent taxation consisting of a state GST and a central GST is touted as a viable medium-term option

• Kelkar Committee has suggested a 20% combined GST rate