The government is likely to concede to Congress’ demand to do away with the one per cent tax on interstate sales, which was proposed to compensate manufacturing states such as Maharashtra, Gujarat and Tamil Nadu who feared a loss of revenue in the new indirect tax regime. The government, however, is keen to keep rates reasonable so that any inflationary impact of the goods and service tax is contained.

The proposed GST seeks to replace excise duty, service tax, value added tax, entry tax and octroi with a single levy and create a unified national market in the country from April 1, 2016. GST has been touted as the most comprehensive reform of indirect taxes since independence. It’s estimated it could lift the country’s GDP growth by one to two percentage points.

The tax will be levied on manufacture, sale and consumption of goods and services. It will transform India into a uniform market by breaking the current fiscal barrier between states. GST will facilitate a uniform tax levied on goods and services across the country.

GST will facilitate a climate of improved tax compliance. It also offers a solution to multinationals as it breaks down the indirect tax structure into one single tax payable by the companies.