Introduction of a Goods and Services Tax (GST) could be delayed further with the Centre and the states failing to reach common ground at the meeting of the Empowered Committee of state finance ministers today. The meeting was attended by only eight state finance ministers. Finance ministers of the Bhartiya Janata Party (BJP)-ruled states were not present. The issue of a constitutional amendment was not discussed and there was no headway on the GST structure.
The Empowered Committee will meet Finance Minister Pranab Mukherjee after the Winter Session to discuss a Constitutional amendment. The states have not reached a consensus among themselves on this issue.
On the GST structure, the states seemed to lack a clear picture on issues such as threshold, exemptions, GST on inter-state movement of goods, and rates. A broad consensus seemed to have emerged earlier this year. The issues will be discussed in subsequent meetings as well.
In today’s meeting, most states were represented by their officials. While most failed to give convincing reasons for the absence of their finance ministers, Empowered Committee chairman and West Bengal finance minister Asim Dasgupta, said: “Many of them are having their Winter Session.”
Apart from Dasgupta, finance ministers of Jammu & Kashmir, Punjab, Uttar Pradesh, Haryana, Tamil Nadu, Meghalaya and Assam were present in the meeting.
“No headway was made in today’s meeting. We were discussing the same issues again. There was no consensus among the states on many issues,” said a finance ministry official.
Haryana finance minister Ajay Singh Yadav said there was a political deadlock and senior leaders of the Congress and the BJP should discuss the issue to sort it out.
In July, the Centre had proposed a GST rate of 20 per cent on standard goods, 12 per cent on essential goods and a uniform 16 per cent on services. Most states seemed to have no issue with the rates. However, today, Dasgupta said the rate structure would be discussed further, as some states were asking for more time to do their home work. Some states were asking for a band of two per cent over and above the proposed rates so that they could have some flexibility to increase rates in the future.
On setting a threshold for GST, states continued to press for a higher limit for central GST, while the northeastern states asked for lower threshold of Rs 5,00,000. The states have been asking for a threshold of Rs 10,00,000 for SGST and Rs 1.5 crore for CGST. The Centre wants a uniform limit.
“The position of the state finance ministers on elimination of a GST council and dispute settlement body in the Constitutional Amendment Bill remains unchanged and the absence of the issue in the agenda for the meeting indicates their unwillingness to find an alternative solution. This is bound to have an impact on the feasibility of introducing GST at an early date,” said Prashant Deshpande, leader, indirect tax, Deloitte.
There is a high probability of the government missing the deadline of rolling out GST on April 1, 2011, said Dasgupta. The deadline will be discussed with the Union finance minister.
The states also demanded an early compensation for at least 60 per cent of the losses they accrued on account of reduction in the Central Sales Tax. The loss in 2010-11 is estimated to Rs 20,000 crore. The meeting also took stock of the revenue growth of states. While VAT collections registered a 30 per cent growth during the first seven months this financial year, against 15 per cent a year-ago, the mop-up from non-VAT items expanded by 28 per cent.
Meanwhile, Ashok Kajaria, president of the PHD Chamber of Commerce, in a meeting with revenue secretary Sunil Mitra on pre-Budget proposals, said the government should not tinker with indirect tax rates and instead push for implementation of GST at the earliest.
“The government must not let the impasse on GST to stay for long and should complete the legislative process in consultation with the states and resolve all pending issues relating to design so that the tax could roll out at least from April 1, 2012,” he said.
