GST riddle: Centre, States to meet in Goa tomorrow

The Hindu, October 28, 2010

State Finance Ministers and the Centre will try to reconcile their differences on the contours of the proposed Goods and Services Tax (GST) at a two-day meeting starting here on Friday.

However, it is unlikely that the Finance Ministry will be able to salvage the April 1, 2011, deadline for roll-out of the new tax regime even if a consensus is reached at the meeting.

Some states — including West Bengal, which heads the state GST panel — do not agree with the Centre’s proposal on the constitution of a GST Council, led by the Union Finance Minister, to deliberate on the state subject of indirect taxes.

Furthermore, a proposed body for settlement of disputes has not garnered any consensus either.

The GST Council and Dispute Settlement Authority were key features in the initial draft of the Constitution Amendment Bill formulated by the Centre and sent to the Empowered Committee of State Finance Ministers on GST for approval.

The states had rejected the first draft of the Centre, alleging that it gave veto power to the Union Finance Minister on state taxation issues. The draft had proposed that changes in GST could only be made with the consent of the Union Finance Minister and a two-thirds majority of the states in the council.

After the states’ opposition, the Centre had floated a second draft proposing that alteration in GST could only be done when there is complete consensus.

While Congress-ruled states agreed to the idea, BJP-ruled states, Uttar Pradesh and Tamil Nadu opposed even the second draft.

The BJP-ruled states wanted to know the exact meaning of ‘consensus’ and suggested that the word be replaced with ’consent’

These states are also opposing the Dispute Settlement Authority proposed by the Centre. The authority is proposed to be chaired by a retired judge of the Supreme Court to resolve disputes arising out of the GST regime.

“Eight to 10 states have been opposing the dispute settlement mechanism, including Tamil Nadu and Uttar Pradesh,” Madhya Pradesh Finance Minister Raghavji had said.

Now, even Empowered Committee Chairman Asim Dasgupta, who is the Finance Minister of West Bengal, suggested that both the GST Council and Dispute Settlement Authority should be done away with.

“Empowered Group of State Finance Ministers Chairman Asim Dasgupta recently met Union Finance Minister Pranab Mukherjee and has submitted a proposal to do away with GST Council and the dispute settlement body in the Constitution Amendment Bill,” an official source said.

Given the stiff opposition of some states to the Centre’s proposal, the Union Finance Ministry is likely to ask the states to come out with their own proposal, to which the Centre would give its response, the source said.

Meanwhile, economic think-tank CUTS said the GST regime will promote a common market in India and enhance consumer welfare, but the Centre should address states’ concerns on the issue.

“State governments have some genuine concerns regarding the expected impact and implementation procedures of the proposed Goods and Services Tax. They should be addressed by the Centre and a suitable path based on political consensus should be devised,” CUTS International Secretary General Pradeep S Mehta told reporters.

Many analysts said that GST roll-out is now a victim of politics, as it is supported or opposed on political lines, though disguised in economic diction.

Introduction of GST, which will subsume excise duty and service tax at the central level and VAT at the state level, besides various other cesses, surcharges and local levies, has already missed the original deadline of April 1, 2010. Now, even the revised timeframe of April 1, 2011, is all set to be missed.

While the Constitution Amendment Bill for rolling out GST was originally proposed to be tabled in the Monsoon Session of Parliament, officials have now admitted that it is unlikely to be tabled even in the Winter Session.

An amendment to the Constitution is required for the roll-out of GST, since under the present mechanism, the Centre cannot impose tax beyond manufacturing, while states cannot impose service tax.

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