Progress on GST, but no Deal Yet 

3-Tier Structure Proposed; Centre Agrees To Compensate States Fully For Loss Of Revenue 

THE Centre and states came closer to a deal on the structure of the ambitious indirect taxes reform, the goods & services tax (GST), after the finance minister agreed to compensate the states fully for any possible loss of revenue from shift to the new tax, brightening the prospects for its rollout from April 1,2011.
However, a few hurdles remain in the form of apprehension that the proposed structure would erode the states constitutional power to levy taxes, but these are being addressed by the finance minister at the level of political parties as well as at the level of state governments.

We have made remarkable progress on major issues... The convergence process between the views of the states and the Centre has progressed significantly and a consensus is emerging on the GST structure, said Asim Dasgupta, the head of the empowered committee of state finance ministers. Mr Dasgupta is the finance minister of West Bengal.
The Centre has proposed a three-rate structure for GST, in line with the recommendations of the empowered committee of state FMs, under which goods will attract a levy of 20%,services 16% and essential items a concessional rate of 12%. The levy is proposed to be split evenly between the states and the Centre.
The panel had suggested a dual-rate structure for GST with a 10% rate for essential items and 20% for others.

Finance minister Pranab Mukherjee also told the empowered panel that the GST should eventually move to a singlerate 16% (8% plus 8%) structure in the third year of its operation. In the second year, the rates are proposed to be lowered to 12% for essential goods,18% for others and 16% for services.

Economic Times, New Delhi, 22-07-2010