Six months after taking charge as chairman of the Empowered Committee of State Finance Ministers, Sushil Modi has succeeded in getting states’ approval on a crucial tax reform proposal of the Centre — a negative list for taxation of services. However, the main issue of implementing the goods and services tax (GST) has not seen much progress. In an interview with Vrishti Beniwal, Modi, the finance minister of Bihar, said the Centre was equally responsible for the delay in the GST roll-out. Edited excerpts:
Initially, states were apprehensive of the Centre’s concept paper on negative list and its introduction before the GST roll-out. How did you manage to get all states on board?
States do not have much of an expertise on service tax. They had not gone into the details of different aspects of a service. But when officials sat together, their opinions came in favour of a negative list because in over 150 countries, which levy service tax, the negative list concept is prevalent. However, there were disputes regarding the definition of service. We have given our definition, but it still can be improved. Since GST would take more time, we convinced states if the Centre introduced the list on April 1, 2012, we would get an opportunity to see how much additional revenue we could gain from services. If there are some issues, those can be sorted out in the meantime and we can again revisit the list when GST is implemented. The Centre can go ahead with the negative list, but we have put forward a condition that the Centre should not encroach into our area.
The industry and the Centre also expect some flexibility from states on GST. The Centre made many changes to the Constitution Amendment Bill for GST to accommodate the views of states, but the latters are not ready to budge.
The empowered committee’s recommendations were not incorporated in the Constitution Amendment Bill. On certain issues like flexibility in giving power to states to raise taxes during drought, flood and other emergencies, there was unanimity in the committee. There were other issues which could have been addressed in the Bill. The parliamentary standing committee is still there, in which many of these conflicts can be resolved. The Centre will have to hear political parties because it’s states who have given their opinion so far. The state governments were more concerned about their interests, but members of Parliament belong to different political parties. So, the Centre should convince the top leadership of various political parties, too. Only then the Bill can be passed by a two-third majority in Parliament.
How do you expect to take things forward when every state has a different set of issues?
There are many issues on which every state government has agreed like the Dispute Settlement Authority and a floor rate with a band. Those have not been taken care of in the Bill.
In a large country like India, there will always be different viewpoints. We have tried our best to resolve all differences. Still, there are issues which can be addressed at a political level and in Parliament.
Do states have a timeline in mind for introducing GST?
The ball is not in the court of state governments. We don’t know how much time the parliamentary standing committee is going to take. In the near future, they will start discussions on GST.
The central sales tax (CST) compensation is another area of discord. The Centre says the compensation was initially envisaged for three years and a new formula should be worked out to decide any future compensation.
If GST has been delayed, it is not because of states governments. The Central government is equally responsible. It took so much time to finalise the Constitution Amendment Bill and many other things, but we gave our opinion in six months. If the Centre has committed to compensate, it should honour the commitment because states had never agreed to this formula. It is ridiculous that in states such as Orissa and Jharkhand, 70 per cent revenue is from the declared goods category and they cannot increase the tax rate on that.
I appeal to the Centre that when we are moving in a positive direction, it should not annoy state governments. Otherwise, states will lose faith that when GST is introduced, the Centre would not compensate their losses. It is not a party-specific issue and even Congress-ruled states like Haryana and Maharashtra are incurring heavy losses.
The Centre also has expectations from states in terms of reducing tax on petroleum products.
That expectation does not have much significance because the basic question is how states are going to be compensated. If they go on reducing duties, where will they get money for developmental works. States get 22-23 per cent of their revenues from petroleum products.
We were demanding half of the central revenue be given to states during the 13th Finance Commission period, but we were given only 32 per cent. It is easy to pass the buck.
What are your expectations from the Union Budget?
When we meet the Union finance minister on January 18, we will put forward our demands on Bihar-specific issues. The common issues that can be raised by states are value-added tax on imports, reduction in the number of centrally sponsored schemes, and direct revenue transfers to state societies.
