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In a letter to the Prime Minister, chief minister J Jayalalithaa today said the revised Draft Constitutional Amendment Bill on GST, which was circulated to the states by the Centre in June, though had dealt with provisions relating to Declared Goods and alcoholic liquor for human consumption, it had missed out on the provisions relating to advisory Committees for dispute resolution
“A number of concerns still remain. Foremost amongst these is the issue of fiscal autonomy. The proposed GST Council, with the functions assigned to it, would override the supremacy of the Legislature—both at the Centre and in the states—in taxation matters. This is unacceptable to Tamil Nadu,” Jayalalithaa said in her letter.
The Amendment Bill also does not include enabling provisions for states to levy higher taxes on tobacco and its products, similar to what has been permitted for the Centre. Tobacco consumption is a public health hazard and many states, including Tamil Nadu, are levying higher taxes on tobacco, which should continue to be permitted, she added.
Jayalalithaa also said petroleum products, including petrol and diesel, are currently outside the purview of state VAT in most states, but are proposed to be covered under GST as per the draft Bill.
“A new provision has been made in the revised draft amendment Bill, which enables states to levy additional taxes over and above the GST on the sale of petroleum products. However, this system of a dual levy of GST and an additional tax is not acceptable to us as a portion of the tax on petroleum products would still be eligible for input tax credit,” she said.
Bringing these products under the ambit of GST would entail a huge revenue loss to the states as input tax credit will have to be provided, said Jayalalithaa, adding that petroleum and petroleum products should be kept outside GST.
Manufacturing activity dependent states like Tamil Nadu stand to permanently lose substantial revenue if GST is implemented. Also, there is no assurance of a permanent compensation mechanism. The state’s experience with the Centre’s compensation mechanism both for the introduction of VAT and the reduction of central sales tax has been far from satisfactory and does not inspire confidence that a fair, hassle-free and workable compensation mechanism can be devised and implemented, the chief minister said.
Therefore, it is imperative that an independent compensation mechanism for revenue losses suffered by the states be enshrined in the Constitution itself and not reduced to an instrument of Union policy, which may change from time to time.
Hence, she reiterated earlier suggestion the Amendment Bill should provide for an independent compensation mechanism in this regard.
She noted that the sub-committees constituted by the Empowered Committee of State Finance Ministers on various aspects of GST, including dual control, threshold and exemptions in the GST regime; inter-state GST and GST on imports; revenue neutral rates for state GST and Central GST and place of supply rules, are yet to submit their final reports.
The Chief Minister also pointed out that many of the concerns she raised, and the fear of many of the present VAT assessees that they would now be subjected to two sets of taxation authorities, could be overcome if a simpler structure of completely delegating the levy, collection and appropriation of the substitutes for VAT, Central Excise Duty and Service Tax within a State to the State machinery is put in place, with the Central machinery focusing on inter-State taxation.
This would not only be administratively much simpler, but also ensure that the original Constitutional design of fiscal federalism of leaving the States in complete control of at least one sizeable source of revenue is followed.
"I believe it is still not too late to move forward on GST by putting in place the elegant solution I have suggested," she said.
"I strongly urge you that a broad consensus on key and contentious issues like dual rate bands, taxation threshold, IGST Model, commodities to be excluded from GST, clarity on dual administrative control, compensation period and methodology, should be arrived at among the States and with the Central Government before the enactment of the Constitutional Amendment Bill on GST is taken up," she said.
