The proposed Goods & Services Tax (GST) today got a major fillip as the Centre relented to some of the key demands of the states and paved way for implementation of the new indirect tax reform, though in a much diluted form. Though no deadline was given for the roll out, many state finance ministers said the next government at the Centre after the general elections should decide on the issue.
A day after clearing Rs 34,000 crore of Central Sales Tax compensation to the states, the Centre has now agreed to make changes to the Constitution Amendment Bill for GST. In a deviation from its earlier stand, it gave consent to a phased roll-out of GST ike the Value Added Tax (VAT). This means that only willing states could embrace the new indirect tax system from the beginning. When VAT was implemented from April one, 2005, many states like Gujarat, Rajasthan, Madhya Pradesh, Chhattisgarh, Jharkhand, Tamil Nadu, Uttarakhand and Uttar Pradesh opted out of it, but joined later.
Also, states will have the flexibility to opt out of it. Instead of its earlier proposal for a uniform GST rates across the country, the union government also agreed to have a floor rate of taxation with a narrow band.
“This was a historic meeting as we moved forward on many issues. There is a broad consensus on GST design. States which don’t want GST can opt out and a provision will be inserted in the Bill. We are trying to convince states that are not on board yet,” Empowered Committee of State Finance Ministers Chairman Sushil Modi told reporters at the end of a two-day meeting here.
Some state finance ministers, Business Standard spoke to, said every state has its own problems and arriving at a consensus in those areas would be very difficult. Many states were of the opinion that a new government at the Centre should roll-out GST. They indicated since general elections are due next year, the Opposition would not let the UPA government take the credit for introducing this far-reaching tax reform.
“The new government should take a call on GST after 2014 elections. The GST design BJP wants will be friendly to the states,” said Madhya Pradesh finance minister Raghavji.
More From This Section
Petroleum products, which were kept out of GST in constitution amendment bill, would now be made part of GST. States will also get powers to raise additional resources in the time of a natural calamity. There will be a special scheme for North Eastern states and Jammu & Kashmir.
Sections proposing a Dispute Settlement Authority to decide disputes arising among states and take action against them will be removed from the Bill. The GST Council will evolve a mechanism to resolve the disputes. The quorum for holding meetings of the GST Council will be raised to half from one-third. The Centre will recommend the changes to Parliamentary Standing Committee on Finance which is vetting the Constitution Amendment Bill.
Three sub-committees, comprising officials from the Union government and the states, have been formed to iron-out the remaining differences between the two sides and submit their reports in three months. The first committee will look at the issue of Integrated GST for inter-state movement of goods and VAT on imports.
The second committee will decide how a revenue neutral rate on GST, which will be the rate which is not too high for the traders and not so low for states that they make losses. It will also consider Place of Supply Rules to address issues arising out of production and consumption of an item taking place in two different states.
The third committee will try to address the issue of dual control of the central revenue authority and the state’s sales tax department in the GST regime. A mechanism will be worked out so that the traders have to coordinate only with one agency. This committee will also decide on a common exemption list and threshold for levying GST. At present, all states together exempt about 100 items whereas the Centre exempts over 200 items from levy of excise duty. The threshold below which tax is not paid by traders is Rs 1.5 crore for the central excise, while for sales tax/VAT it is Rs 10 lakh.
“The decisions will help in implementing GST at the earliest. Also, the decision to include petroleum sector in the Constitution Amendment Bill is a welcome step. Flexibility to states to join GST is something which will cause concern to the industry though may be realistic,” said Harishanker Subramaniam National Leader- Indirect Tax, Ernst & Young
The states have also proposed to the Union government to define the word ‘consensus’ in the Constitution Amendment Bill to make changes in GST and abolish the provision from the law which enables Centre to bring goods under ‘declared goods’ category that deprives states of higher revenues. Any goods brought in declared goods in the public interest has to have central sales tax of just two per cent.
“Consensus means 100 per cent agreement. We have proposed one-third weightage to the Centre and two-third to the states,” Modi said.