GST trips on oil, liquor and entry tax barriers

Written by fe Bureau | New Delhi | Updated: Oct 22 2013, 10:49am hrs
With most states opposing the governments suggestion to bring petroleum and potable alcohol within the ambit of the proposed goods and services tax (GST), a roll-out of the new indirect tax system, planned for April 2015, could be deferred.

A delay seems inevitable as consensus on other issues, including entry tax and octroi, eluded a meeting of the Empowered Committee (EC) of state finance ministers on Monday. A few states, including Madhya Pradesh and Maharashtra, were against their abolition since these form a major source of revenue for them.

In August, parliamentary standing committee chairman Yashwant Sinha had suggested that petroleum, petroleum products and liquor be included in the GST. Sinha had also suggested changes in the design of the tax, recommending doing away with a separate dispute resolution authority, and had also suggested that states be allowed to levy tax within a narrow band. He also recommended they be given the flexibility to adopt the GST when it suited them, much like it was when value-added tax (VAT) was implemented.

The lack of consensus on key issues will delay the finalisation of the Constitution amendment Bill that needs to be passed by Parliament and also ratified by the states before GST becomes a reality.

Taxes on petroleum account for about 13 % of the Centres tax revenues and a larger chunk of about 30-40% of states revenues by way of VAT. VAT is typically levied in a range between 5% and 20% of the retail price of petroleum products.

Briefing newspersons after the meeting, Abdul Rahim Rather, chairman of the empowered committee of state finance ministers conceded that there was opposition to some proposals. Most states want petroleum, petroleum products and potable liquor to remain outside the framework of the GST, Rather said.

The EC will now meet in Shillong in the first half of November.

The issue of compensation to states was also discussed at the meeting on Monday. The Centre is yet to disburse Rs 9,000 crore by way of compensation to the states although a provision has been made in the Budget for 2013-14. According to the draft Constitution (115th Amendment) Bill, petroleum products and liquor are to be subsumed into the GST through the introduction of Clause 12A into article 366 of the Constitution.

At the meeting in Bhubhaneswar in late January this year, states were reconciled to incorporating petroleum and potable alcohol within GST provided they were allowed to levy an additional tax, over the GST rate, without the input tax credit facility. The draft Constitution (115th Amendment) Bill, however, does not make a provision for such a levy, which would have taken care of revenue losses that states would have suffered if petroleum and liquor were included in GST.

The parliamentary committee had said that entry tax, a levy imposed by states on movement of goods from one state to another, should be subsumed in the GST. It, however, pointed out that states had wanted to collect the entry taxes themselves to be distributed to the local bodies rather than the latter collecting them.