The Centre has proposed a five-year timeframe for reimbursing states for any revenue loss arising out of implementing Goods and Services Tax (GST).
One of the concerns of the state governments is post-GST, area-based exemption — where companies need not pay indirect taxes — will not be extended. States fear that firms would relocate their manufacturing base once tax incentive is gone and thus lead to decline in revenue collections.
Meanwhile, differences between the BJP- and Congress-ruled states have emerged on when to start implementing GST, a unified indirect tax that will replace many state and central level duties. Initial plan was to roll out GST from April 1, 2010.
“There should be compensation for states that lose out because of GST implementation. There is a proposal of providing it for five years. But we want it to continue without any timeframe,” Assam Chief Minister Tarun Gogoi told the media, at the sidelines of the pre-Budget meeting between states and the finance ministry. Gogoi is in charge of finance-related matters of Assam government.
An empowered committee of state finance ministers headed by West Bengal Finance Minister Asim Dasgupta is evolving a consensus on implementing GST.
When value-added tax (VAT) was introduced from April 2005, the Centre had agreed to compensate any revenue loss 100 per cent in the first year, 75 per cent in the second year and 50 per cent in the third year. As the VAT revenue showed good growth, the Centre received claims of only Rs 13,167 crore till January 31, 2008, the last date for which data is available.
States ruled by BJP are having a differing view on implementation of GST. “The Information technology infrastructure for GST is not ready. Even the road map is not in place. How can we implement GST from April 1, 2010,” said Amar Aggarwal, minister for trade taxes, Chhattisgarh government.
“We want implementation of GST. But the date will be fixed after consultation with the Centre,” said Himachal Pradesh Chief Minister Prem K Dhumal. Aggarwal and Dhumal belong to BJP-ruled states.
However, Congress-ruled states are in favour of implementing GST from April 2010. “There was lot of similar doubts and problems about VAT, which now is running successfully. I don’t think, there would be any problem in implementing GST from April 1, 2010,” said Goa Chief Minister Digambar Kamat.
Finance Minister Pranab Mukherjee told the state government representatives that implementation of GST was important for the economy. “This is a critical part of our economic reforms. I request all the chief ministers and finance ministers to resolve the pending issues expeditiously.”
The empowered committee has decided to meet once every month, to make up for the time lost due to the general elections. “We do not have much time and will work intensively to sort out problems with states,” Dasgupta said.
