Karnataka, which is open to implementing the GST as and when a national consensus is arrived at, has raised objections on three main accounts, including the loss of revenues or compensation formula, protection of state government’s sovereignty with respect to the levy of tax on certain commodities and thirdly, charging the highest tax rate of 24-26 per cent.
According to sources, Karnataka is happy with the revenue-sharing arrangement as far as service taxes are concerned. When GST comes into effect, the state government would stand to benefit by additional revenue of Rs 4,000 crore to Rs 5,000 crore.
The state government wants further clarity on the maximum rate of tax it can levy. It wants to have the right to levy a maximum rate of tax at 24-26 per cent, whereas the Central government has restricted it to 20 per cent.
The sources said, the Centre should arrive at a proper consensus on the broad GST structure before implementing it.
S Suresh Kumar, minister for law, government of Karnataka, said, “We have expressed our reservations on a few points. As the implementation of GST is a remote possibility during fiscal 2013-14, we have demanded the Centre continue the CST compensation for one more year. Until over 50 per cent of the states agree on the broad parameters proposed in the GST, the Centre should not hurry up in implementing the new tax system.”
Karnataka has urged the Centre to continue with the CST loss compensation package for 2013-14 as well and make necessary provisions in its budget now itself.
“I join other states in calling upon the government of India to release at least 50 per cent of the CST compensation due to each state for 2010-11, 2011-12 and 2012-13 before the end of this financial year on a provisional basis,” Suresh Kumar, minister for law, government of Karnataka, said. Karnataka has reiterated its support to the recommendations of the committee to amend the proposed provisions to provide for the GST Council to recommend floor rates of GST with a band giving certain fiscal autonomy to states to raise resources, if required. “We also welcome the proposed insertion of a new provision clarifying that the states and Centre would have the flexibility to raise additional resources during natural calamities and disasters by revising the rates of GST,” the minister said.
There are going to be gainers and losers in GST. The level of loss to losers needs to be assessed. The GST structure results in very little elbow room for states to raise additional resources.
The Centre has asked the 14th Finance Commission to give its recommendations on the GST compensation. The recommendations of the 14th Finance Commission will not be available till December 2014. Without clarity on the compensation commitment of the Government of India, and the extant and determining principles of the compensation, the states should not be expected to sign on the GST blindly. Further, the state has suggested that the GST Council be the body to implement and monitor the compensation to states. Necessary changes in the draft bill may be made to expand the scope of work of the GST Council to include this item of work, he said. The Karnataka government has also strongly urged the Empowered Committee not to give in to the recommendations by the Centre to include petroleum products under GST. It will have a disastrous impact on the states, he said. The state has also opposed the continuance of the concept of declared goods under GST.
Meanwhile, the state government has installed a robust IT backbone and computers in most offices. The preparedness to implement GST is almost 95 per cent compared to many other states which are still to catch up on the IT infrastructure. The Karnataka government has already spent about Rs 1,800 crore on setting up the relevant infrastructure.
