Synopsis of the speech made by the Finance Minister on GST

Speech made by the Finance Minister at the meeting with the Empowered Committee of State Finance on the Goods and Service Tax (GST) on 21 July 2010.

Threshold limit

• Exemption threshold for both goods and  services under Central Goods and Service Tax (“CGST”) and State Goods and Service Tax  (“SGST”) to be INR 10 lakh

• Threshold for small dealers under both CGST and SGST to be INR 50 lakh or INR 1 crore.

Exemptions

• Review of the existing exemptions from Central Excise Duty to be done so that the list of goods exempt from CGST is aligned to the  goods exempt from SGST

• 99 items currently exempt from Value Added Tax (“VAT”) to be exempt from both CGST and SGST

Rates

• In the first year of GST implementation, lower  rate for goods to be 6% and standard rate to be 10% under CGST and SGST. Services to be charged at the rate of 8% under both CGST and SGST

• The adoption of above rates would ensure a  single rate for CGST and SGST in the range of 12% to 20% in the first year of GST  introduction

• During the second year of implementation of  GST, lower rate for goods to be maintained at  6% and standard rate to be reduced to 9%  under both CGST and SGST. However, such  reduction to be subject to revenue receipt of  the Centre and the States during this period

• During the third year of GST implementation,  lower rate for goods to be increased to 8% and  the standard rate to be reduced to 8% for both  CGST and SGST. However, the CGST and  SGST rate for services to be retained at 8%

• The implementation of above rate in a phased manner would lead to a single CGST and SGST rate for both goods and services

Compensation to States

• Centre may increase the amount of compensation to the States on account of adoption of GST as recommended by Thirteenth Finance Commission if need arises

• Centre to fully compensate the states for their revenue loss on account of Central Sales Tax (“CST”) reduction during the year 2009- 10 and to release the balance amount to the states immediately

• Centre to compensate States for subsuming (into GST), purchase tax on food grains, which would be provided along with VAT compensation for the next four years