Decks cleared for a diluted GST as Centre relents on key demands of states

Decks cleared for a diluted GST as Centre relents on key demands of states Centre has now agreed to make changes to the Constitution Amendment Bill for GST Vrishti Beniwal / New Delhi Jan 29, 2013, 19:39 IST

The proposed Goods & Services Tax ( GST) today got a major fillip as the Centre relented to some of the key demands of the states and paved way for implementation of the new indirect tax reform, though in a much diluted form. Though no deadline was given for the roll out, many state finance ministers said the next government at the Centre after the general elections should decide on the issue.

A day after clearing Rs 34,000 crore of Central Sales Tax compensation to the states, the Centre has now agreed to make changes to the Constitution Amendment Bill for GST. In a deviation from its earlier stand, it gave consent to a phased roll-out of GST ike the Value Added Tax (VAT). This means that only willing states could embrace the new indirect tax system from the beginning. When VAT was implemented from April one, 2005, many states like Gujarat, Rajasthan, Madhya Pradesh, Chhattisgarh, Jharkhand, Tamil Nadu, Uttarakhand and Uttar Pradesh opted out of it, but joined later.

This was a historic meeting as we moved forward on many issues. There is a broad consensus on GST design. States which dont want GST can opt out and a provision will be inserted in the Bill. We are trying to convince states that are not on board yet, Empowered Committee of State Finance Ministers Chairman Sushil Modi told reporters at the end of a two-day meeting here.

Some state finance ministers, Business Standard spoke to, said every state has its own problems and arriving at a consensus in those areas would be very difficult. Many states were of the opinion that a new government at the Centre should roll-out GST. They indicated since general elections are due next year, the Opposition would not let the UPA government take the credit for introducing this far-reaching tax reform.

The new government should take a call on GST after 2014 elections. The GST design BJP wants will be friendly to the states, said Madhya Pradesh finance minister Raghavji.

Petroleum products, which were kept out of GST in constitution amendment bill, would now be made part of GST. States will also get powers to raise additional resources in the time of a natural calamity. There will be a special scheme for North Eastern states and Jammu & Kashmir.

Sections proposing a Dispute Settlement Authority to decide disputes arising among states and take action against them will be removed from the Bill. The GST Council will evolve a mechanism to resolve the disputes. The quorum for holding meetings of the GST Council will be raised to half from one-third. The Centre will recommend the changes to Parliamentary Standing Committee on Finance which is vetting the Constitution Amendment Bill.

Three sub-committees, comprising officials from the Union government and the states, have been formed to iron-out the remaining differences between the two sides and submit their reports in three months. The first committee will look at the issue of Integrated GST for inter-state movement of goods and VAT on imports.

The second committee will decide how a revenue neutral rate on GST, which will be the rate which is not too high for the traders and not so low for states that they make losses. It will also consider Place of Supply Rules to address issues arising out of production and consumption of an item taking place in two different states.

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Decks cleared for a diluted GST as Centre relents on key demands of states