 "GST: FM offers to resolve CST compensation row")
For an early roll-out of the Goods and Services Tax (GST), Finance Minister Arun Jaitley on Thursday sought to woo states by offering to resolve the long-pending issue of compensating states for revenue loss on account of a cut in Central Sales Tax (CST). This indicates the government might raise the allocation towards this head in the Budget for 2014-15, scheduled for July 10, compared to Rs 9,000 crore in Budget 2013-14.
The finance ministry also promised more engagement with states on other demands such as keeping petroleum outside the ambit of the new indirect tax system.
Following a meeting with state chief ministers and finance ministers on GST, Jaitley said the Centre would resolve the issue of compensation to states. "Fixing the compensation issue is critical to roll out GST," he said.
Differences between the United Progressive Alliance government and states over CST compensation had lingered. CST, a tax on inter-state movement of goods, was cut from four per cent to two per cent, in phases. In late 2012, states had reached an understanding with the Centre for 100 per cent compensation for 2010-11, 75 per cent for 2011-12 and 50 per cent for 2012-13.
However, in Budget 2013-14, then finance minister P Chidambaram provided just Rs 9,000 crore for the compensation. Of this, only Rs 1,900 crore was released.
States complained they hadn't been given compensation since 2011-12. They also persisted with their demand of keeping petroleum out of GST. "States want petroleum to be out of GST," said Abdul Rahim Rather, Jammu & Kashmir finance minister and chairman of the empowered committee of state finance ministers.
Against the previous government's insistence on keeping petroleum within GST, the new regime has kept its options open. "We are engaging with states with an open mind. They are saying something; we are hearing them out," Sitharaman said.
When asked whether petroleum would be kept out of GST, she said the Centre tried to understand in greater detail where the issue stood. "We heard their arguments. At this stage, I have nothing to say except the talks are moving in a very positive and constructive way."
She added many states had demanded entry tax should not be subsumed under GST. "Because it is the only source of revenue for local bodies, they were concerned about loss of revenue," she said.
States also wanted the central part of integrated GST (to be imposed on inter-state sale) should also be part of a divisible pool between the Centre and states. They demanded the compensation to states for loss due to proposed GST be included in the Constitution amendment Bill, even as the Centre has agreed to give the money for three years to states.
"Though the government of India has agreed to give states compensation for revenue losses arising out of GST for three years post its implementation, it has not agreed to include it in the Constitution amendment Bill, as states have demanded," Rather said.
Sitharaman declined to comment on the Bill, saying first, the issues of petroleum, entry tax, etc, should be resolved and then, "we will move to the next issue". She didn't give any timeline for rolling out GST, but said it would be a reality sooner rather than later.
It is expected Jaitley will provide a broad outline of the Centre's perception on GST in the coming Budget. "Our intent and commitment in moving towards a positive resolution of GST is very clear. Otherwise, with just couple of days to go for the Budget, you would not have the finance minister listening to state finance ministers and chief ministers on the matter of GST. We are very clear -we want to work with states," Sitharaman said.
The GST journey
The finance ministry also promised more engagement with states on other demands such as keeping petroleum outside the ambit of the new indirect tax system.
Following a meeting with state chief ministers and finance ministers on GST, Jaitley said the Centre would resolve the issue of compensation to states. "Fixing the compensation issue is critical to roll out GST," he said.
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Nirmala Sitharaman, minister of state for finance, said the new government had inherited the issue, adding it would work on this front.
Differences between the United Progressive Alliance government and states over CST compensation had lingered. CST, a tax on inter-state movement of goods, was cut from four per cent to two per cent, in phases. In late 2012, states had reached an understanding with the Centre for 100 per cent compensation for 2010-11, 75 per cent for 2011-12 and 50 per cent for 2012-13.
However, in Budget 2013-14, then finance minister P Chidambaram provided just Rs 9,000 crore for the compensation. Of this, only Rs 1,900 crore was released.
States complained they hadn't been given compensation since 2011-12. They also persisted with their demand of keeping petroleum out of GST. "States want petroleum to be out of GST," said Abdul Rahim Rather, Jammu & Kashmir finance minister and chairman of the empowered committee of state finance ministers.
Against the previous government's insistence on keeping petroleum within GST, the new regime has kept its options open. "We are engaging with states with an open mind. They are saying something; we are hearing them out," Sitharaman said.
When asked whether petroleum would be kept out of GST, she said the Centre tried to understand in greater detail where the issue stood. "We heard their arguments. At this stage, I have nothing to say except the talks are moving in a very positive and constructive way."
She added many states had demanded entry tax should not be subsumed under GST. "Because it is the only source of revenue for local bodies, they were concerned about loss of revenue," she said.
States also wanted the central part of integrated GST (to be imposed on inter-state sale) should also be part of a divisible pool between the Centre and states. They demanded the compensation to states for loss due to proposed GST be included in the Constitution amendment Bill, even as the Centre has agreed to give the money for three years to states.
"Though the government of India has agreed to give states compensation for revenue losses arising out of GST for three years post its implementation, it has not agreed to include it in the Constitution amendment Bill, as states have demanded," Rather said.
Sitharaman declined to comment on the Bill, saying first, the issues of petroleum, entry tax, etc, should be resolved and then, "we will move to the next issue". She didn't give any timeline for rolling out GST, but said it would be a reality sooner rather than later.
It is expected Jaitley will provide a broad outline of the Centre's perception on GST in the coming Budget. "Our intent and commitment in moving towards a positive resolution of GST is very clear. Otherwise, with just couple of days to go for the Budget, you would not have the finance minister listening to state finance ministers and chief ministers on the matter of GST. We are very clear -we want to work with states," Sitharaman said.
The GST journey
- Initially, GST was to come into effect from April 1, 2010
- It missed various deadlines, as differences persisted between Centre and states
- Primary among the differences was compensation to states for cut in CST
- States also want petroleum to be kept out of GST ambit
- UPA govt proposed inclusion of petroleum in GST; new govt shows flexibility on the matter
- States also want Centre to give commitment on compensation for loss due to GST through constitution Bill