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It would be much easier for the Centre to block a proposal in the proposed GST council than for states, even as Finance Minister Arun Jaitley has tried hard to allay fears of the Opposition over the issue.
Jaitley had said in the Lok Sabha on Wednesday that both the Centre and states would have veto powers in the council, which would be the final authority to take a call on crucial GST matters such as tax rates, exemptions, exclusions or inclusions of items in the new taxation.
The Centre can single-handedly veto any proposal put forth by the states. In the proposed council, the Centre will have one-third voting power (33.33 per cent) and the states together will have two-third voting rights (66.67 per cent), according to the constitutional amendment Bill on goods and services tax (GST) passed by the Lok Sabha. Each state, whether big such as Uttar Pradesh or Madhya Pradesh or small such as Uttarakhand or Chhattisgarh, will have the same voting percentage with it.
| PROPOSED GST COUNCIL |
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FUNCTION: To take a call on rates, exemption list and threshold limits COMPOSITION Union FM: Chairman MEMBERS
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For any proposal to be cleared by the council, it has to get 75 per cent of the vote. This means that anyone who has greater than 25 per cent vote can easily block a measure. The Centre has much more than this power in the proposed council. Those who did not know the fact wondered as to why AIADMK leader M Thambidurai kept repeating that the Centre has a veto power in the council, when Jaitley clarified the position in the Lok Sabha.
"Without the Centre's approval, nothing can be cleared in the GST council. It is because its consent is essential," said R Muralidharan, senior director, Deloitte in India. For states to block a resolution, they need to have more than 25 per cent votes. All states put together have 66.67 per cent votes. This means that 37.5 per cent of states should come together to block a proposal. Of the 30 Indian states, this may require at least 12 states to join hands to block a proposal.
Jaitley was correct when he said that the proposed council would make the Centre and states work in the spirit of cooperative federalism. This is so because the Centre will need the support of 44 per cent of the state vote. This means that almost 63 per cent of the states would need to support the Centre's proposals (44 per cent of 66.66 per cent). Of the 30 states, it will require the consent of almost 19 states.
Say, some states want to continue the proposed one per cent tax for more than two years, provided in the Bill for originating states. The Centre, if it wants, can block the proposal. The tax is mainly provided for to woo manufacturing states. If these states want to carry out a proposal, they will have to woo the Centre as well as other states to have at least 19 of them on their side.
Since the proposal will benefit mainly Maharashtra, Gujarat, Tamil Nadu and some other states, the rest may or may not want to be with them.
It is also to be noted here that one-third voting power of the Centre and two-third voting rights for states are in proportion to those present and voting.
If some states abstain, then this figure will automatically change in terms of the number of states favouring or opposing a proposal and their voting rights. Say, 10 states abstain and 20 states vote for or against a proposal. Then the Centre will need 63 per cent of the states on its side to push a proposal through. This would mean 13 states.
As not all states can woo others to their side, some Opposition members have voiced concern over the marginalisation of some weak states.
"There may be orphaned states who will have no voice in that. In fact, the idea of such a council is to give a voice to the interests of every state, however weak they may be politically," Congress MP and standing committee on finance chairman Veerappa Moily said.
"A plain reading of the formula presents a picture that if a state is unavailable on the day of voting, it loses its voting power," said Vivek Mishra, leader, indirect tax, PwC India.
PROPOSED GST COUNCIL
FUNCTION: To take a call on rates, exemption list and threshold limits
COMPOSITION
Union FM: Chairman
MEMBERS
| Union minister of state for finance
| State finance ministers or taxation minister or any minister nominated by each state government
VOTING RIGHTS
Centre: One third of total votes cast
States: Two-thirds of the total votes cast
| Each state, big or small, will have equal vote
