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GST may be set at 14-16 pc: Chidambaram

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Service tax rate hike explained

The Finance Minister promises to address India Inc's concerns before May 1.

Meet with captains: THE FINANCE MINISTER, Mr P. Chidambaram, with Presidents of trade chambers (from left) Mr Anil K. Agarwal (Assocham); Mr Y.C. Deveshwar (CII); Mr S.K. Poddar (FICCI) at the post-Budget meeting in the Capital on Wednesday. — Kamal Narang

New Delhi , March 1

The Finance Minister, Mr P. Chidambaram, on Wednesday hinted that the resting point for the proposed national level Goods and Services Tax (GST) would be between 14 and 16 per cent. Explaining the rationale for increasing the service tax rate to 12 per cent in the Budget, he said that since movement to GST had been planned for April 1, 2010, there had to be convergence of the excise and service tax rates.

Addressing industry representatives at a post-Budget meeting here, Mr Chidambaram said since the CENVAT rate currently was 16 per cent, the service tax rate of 10 per cent would be too low for the converged GST which would rest between 14 and 16 per cent. Therefore, to move the service tax rate towards the converged GST, he had taken the step of increasing the service tax rate to 12 per cent, he added. "We will announce a roadmap towards GST in consultation with the State Finance Ministers," he said.

Manufacturing growth

The Minister also called upon corporate India to identify issues that stood between them and a 12 per cent growth in manufacturing. "I will make an open offer to you today. Let us meet two months from now, that is, around May 1 and you identify the issues that stand between you and 12 per cent growth in manufacturing. Give me the list 15 days before May 1 and your concerns will be addressed," Mr Chidambaram said. He highlighted the point that the manufacturing sector had to grow at 12 per cent and the agriculture sector by at least 4 per cent if the country were to achieve 10 per cent gross domestic product (GDP) growth.

Responding to the Federation of Indian Chambers of Commerce and Industry Vice-President, Mr N. Srinivasan's suggestion that there was a case for a relook at the changes in depreciation rates effected last year, Mr Chidambaram said that this was not required as there was no real hit on balance sheets of companies on account of the alignment of depreciation rates under income tax and company law.

Mr Chidambaram disagreed with the Confederation of Indian Industry Vice-President, Mr R. Seshasayee, who said this may not have been the appropriate time to go in for a cut in peak customs duty rate and that it could have been looked at later.

"We are in the 15th year of liberalisation and are still away from ASEAN rates. I had two options — cut by 5 per cent or 2.5 per cent. In deference to the sentiments of people like yourself, I opted for 2.5 per cent. We are doing it autonomously and not because of WTO. Access to imported raw materials at lower duties would make domestic industry competitive. A 2.5 per cent cut is absolutely important," Mr Chidambaram said.

States flush with funds

The Finance Minister also asked corporate India to approach State Governments and urge them to spend more under their programmes. "States are flush with money. They are in a position now to spend from day 1 of the year. Last year, the Centre transferred Rs 74,000 crore to the States. This year, we will transfer Rs 94,000 crore and in the next year Rs 1,13,000 crore. As of yesterday, cash balances of States stood at Rs 36,000 crore. Another 20,000 crore would be transferred today," the Minister said.

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