The FM has proposed to start with a differential tax structure for goods and services in the first year and gradually converge to a uniform rate structure applicable for all goods and services in the third year. He has proposed Central GST (CGST) and requested states to consider State GST (SGST) rates equivalent to the former. Likely effective rates are summarised in the table below:
Rate Structure – There will be two tier rate structure for goods and separate rate for services in initial years. It is proposed to be converged in to a single rate (applicable to both goods and services) in the third year. Effective standard tax rate on goods is likely to be 20% in the first year, dropping to 16% in the third year. Concessional tax rates applicable to selected goods will move up and converge to a uniform rate in the third year. However, reduction in tax rate and convergence will depend on actual revenue receipts of states and central government. Effective tax rate on services is likely to rise from the current 10% to 16%; hence, services will be more expensive.
Tax Base GST will be levied on comprehensive base of goods and services unless specifically exempted. Petroleum products, alcohol, and electricity will remain outside the ambit of GST. It has been decided to review the existing list of goods exempt from excise duty (~ 300 goods) so that the list of goods exempt from CGST is aligned with the SGST list and 99 items currently exempt from VAT are exempt from both components of GST. This will lead to significant broadening of the tax base. Uniform threshold exemption limit for both goods and services under both components of GST proposed at INR 1 mn.
As per the above road map suggested by the FM there will be a single uniform GST rate for both goods and services at the end of the third year of roll out. The requisite IT infrastructure proposed to be put in place will bring better controls and transparency in the system and reduce the size of the parallel economy also known as Black Money Economy.