At the meeting with the Empowered Committee of State Finance Ministers recently, Finance Minister Pranab Mukherjee put forth the idea of a three-tier tax structure, which will be introduced from 1st April 2011 onwards, for duration of three years.

A dual rate system was proposed for the GST, at the Centre level (CGST) as well as the State level (SGST), where the revenue collected will be divided equally between the two.

According to this proposal, a combined GST at 20 percent standard rate will be charged on goods, 12 percent on essential items and 16 percent on services.

The States will be requested to keep the same rates – a lower rate at 6 percent for the SGST and a standard rate of 10 percent, besides an 8 percent for services. This will ensure a single rate for both the CGST and SGST in the range 12-20 percent. The States though, have still not taken a final decision over the matter.

The Centre has said the Government will fully compensate the States for the loss in revenue due to the CST, and the compensation amount will also be increased if required.