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Saturday, February 12th, 2011 | Posted by

GST: No consensus among states yet, Centre concerned

Another effort by the Centre towards a consensus on the proposed Goods and Services Tax has suffered a setback with 10 states opposing the new draft for a tax regime aimed at changing India’s fiscal landscape.

The consensus for a Constitution Amendment Bill among states could not be reached even after Union Finance Minister Pranab Mukherjee agreed to fully compensate states losses suffered due to a reduction in the rate of the central sales tax (CST) from four to two percent.
In all, finance ministers or senior officials of 26 states participated in the meeting of the Empowered Committee of State Finance Ministers chaired by West Bengal Finance Minister Asim Dasgupta.
After the meeting, the finance ministers met Mukherjee.
“…16 states indicated support of the revised draft amendments proposed by the government of India… Ten States opposed,” a finance ministry statement said on Friday.
Mukherjee shared his concern over delay in the GST roll-out.
“We have missed the timelines twice and it is my earnest request to you all (state finance ministers) that we move expeditiously and introduce the Constitutional Amendment Bill in the forthcoming Budget session,” Mukherjee told finance ministers.
The finance ministry said: “It is the prerogative of the executive, in this case, the government of India to introduce a bill in Parliament seeking amendment of the constitution. It is the Parliaments prerogative to either decide in favour of its approval or its rejection.”
Quoting Mukherjee, it said: “Since the issue has been under discussion now for four years and majority of states have expressed support for early introduction of the bill… it was time for action.”
The UPA government wants to introduce the GST Amendment Bill in the upcoming Budget session of Parliament.
Several states, mostly NDA-ruled states of Bihar, Madhya Pradesh and Gujarat, are opposed to draft proposals apprehending their autonomy would be compromised.
In its latest GST constitution amendment draft — the third of its kind — the Centre has proposed to give power to Parliament for constituting the GST council, a move vehemently opposed by the BJP-ruled states.
“This will destroy our fiscal autonomy, so we do not accept the constitution amendment bill for GST,” Madhya Pradesh Finance Minister Raghavji said.
Mukherjee, meanwhile, sought to allay concerns saying: “There would be adequate scope and opportunity for refinement of the text of the amendments proposed after its (Constitution Amendment Bill) intruduction…”
Mukherjee said Centre would provide full compensation, to the tune of Rs 14,000 crore, to states to make up for losses suffered by them on account of reduction in CST rate.
“…the Centre has accepted the request of states for payment of compensation for the financial year 2010-11… I had proposed to make payment on account and on ad hoc basis to such states pending finalisation of guidelines,” he said.
On Thursday, the government had approved Rs 7,029 crore compensation to states for CST loss in 2010-11. Of this Rs 3,000 crore is likely to be released this fiscal.
Speaking after the meeting, Dasgupta said: “He (Mukherjee) said he would compensate for the CST loss of states… To begin with it would be an hoc relief to be followed by subsequent measures.”
Asked about the likely size of the compensation, he said it would be around Rs 14,000 crore.
Regarding the draft, he said states continued to have their own views.
The government had originally planned to roll out GST from 1st April last year but a consensus could not be built on introduction of the constitutional amendment Bill which is required to be passed by two-third majority in both the Houses of Parliament.
The GST would subsume most of the central and state taxes like excise and sales tax, making life easier for the industry and other tax payers.
The proposed GST, which will change India’s fiscal landscape, however, has faced several roadblocks as states apprehended that their autonomy would be compromised.
There have been disagreements on issues like constitution of the GST Council, which will govern the tax regime, and on the powers to be conferred on the central government and the Union Finance Minister.
Once the proposed Goods and Services Tax (GST) is rolled out, other existing indirect taxes, including the CST, would be subsumed into it.
CST, a tax on movement of goods from one state to another, was reduced from 4 percent to 3 percent in 2007-08 and further to 2 percent in 2008-09 after the introduction of VAT, as it was considered distortionary.

Another effort by the Centre towards a consensus on the proposed Goods and Services Tax has suffered a setback with 10 states opposing the new draft for a tax regime aimed at changing India’s fiscal landscape.

The consensus for a Constitution Amendment Bill among states could not be reached even after Union Finance Minister Pranab Mukherjee agreed to fully compensate states losses suffered due to a reduction in the rate of the central sales tax (CST) from four to two percent. In all, finance ministers or senior officials of 26 states participated in the meeting of the Empowered Committee of State Finance Ministers chaired by West Bengal Finance Minister Asim Dasgupta. After the meeting, the finance ministers met Mukherjee. ”…16 states indicated support of the revised draft amendments proposed by the government of India… Ten States opposed,” a finance ministry statement said on Friday. Mukherjee shared his concern over delay in the GST roll-out. ”We have missed the timelines twice and it is my earnest request to you all (state finance ministers) that we move expeditiously and introduce the Constitutional Amendment Bill in the forthcoming Budget session,” Mukherjee told finance ministers. The finance ministry said: “It is the prerogative of the executive, in this case, the government of India to introduce a bill in Parliament seeking amendment of the constitution. It is the Parliaments prerogative to either decide in favour of its approval or its rejection.” Quoting Mukherjee, it said: “Since the issue has been under discussion now for four years and majority of states have expressed support for early introduction of the bill… it was time for action.” The UPA government wants to introduce the GST Amendment Bill in the upcoming Budget session of Parliament. Several states, mostly NDA-ruled states of Bihar, Madhya Pradesh and Gujarat, are opposed to draft proposals apprehending their autonomy would be compromised. In its latest GST constitution amendment draft — the third of its kind — the Centre has proposed to give power to Parliament for constituting the GST council, a move vehemently opposed by the BJP-ruled states. ”This will destroy our fiscal autonomy, so we do not accept the constitution amendment bill for GST,” Madhya Pradesh Finance Minister Raghavji said. Mukherjee, meanwhile, sought to allay concerns saying: “There would be adequate scope and opportunity for refinement of the text of the amendments proposed after its (Constitution Amendment Bill) intruduction…” Mukherjee said Centre would provide full compensation, to the tune of Rs 14,000 crore, to states to make up for losses suffered by them on account of reduction in CST rate. ”…the Centre has accepted the request of states for payment of compensation for the financial year 2010-11… I had proposed to make payment on account and on ad hoc basis to such states pending finalisation of guidelines,” he said. On Thursday, the government had approved Rs 7,029 crore compensation to states for CST loss in 2010-11. Of this Rs 3,000 crore is likely to be released this fiscal. Speaking after the meeting, Dasgupta said: “He (Mukherjee) said he would compensate for the CST loss of states… To begin with it would be an hoc relief to be followed by subsequent measures.” Asked about the likely size of the compensation, he said it would be around Rs 14,000 crore. Regarding the draft, he said states continued to have their own views.

The government had originally planned to roll out GST from 1st April last year but a consensus could not be built on introduction of the constitutional amendment Bill which is required to be passed by two-third majority in both the Houses of Parliament. The GST would subsume most of the central and state taxes like excise and sales tax, making life easier for the industry and other tax payers. The proposed GST, which will change India’s fiscal landscape, however, has faced several roadblocks as states apprehended that their autonomy would be compromised. There have been disagreements on issues like constitution of the GST Council, which will govern the tax regime, and on the powers to be conferred on the central government and the Union Finance Minister. Once the proposed Goods and Services Tax (GST) is rolled out, other existing indirect taxes, including the CST, would be subsumed into it. CST, a tax on movement of goods from one state to another, was reduced from 4 percent to 3 percent in 2007-08 and further to 2 percent in 2008-09 after the introduction of VAT, as it was considered distortionary.

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