With finance minister Arun Jaitley stating on Wednesday that the Constitution Amendment Bill on Goods and Services Tax (GST) would be taken up for consideration and passage in the Parliament in a few days, state finance ministers seek more taxation rights and revenue compensation assurances built into the Bill.
The Centre plans to take up the Bill for discussion in Lok Sabha in the next two days so that the proposed Goods and Services Tax (GST) could be introduced from April 1, 2016, as planned.
The Bill redefines the indirect tax framework by allowing both the centre and state governments to tax both goods and services at all points of sale, which is essential for a GST.
At a meeting with Jaitley on Wednesday, states sought changes in the Bill to allow manufacturing states like Gujarat, Maharashtra and Tamil Nadu to levy an extra 2% tax on inter-state sale of goods instead of the extra 1% already provided for over and above the GST to be determined. States also sought the right to tax tobacco over and above the GST rate applicable on it as the Centre has retained such a power for itself in the Bill.
State finance ministers also want the Constitution to guarantee permanent compensation for revenue losses arising from GST implementation instead of the five-year compensation the Bill currently envisages.
Besides, the constitutional guarantee to make up for states’ possible revenue losses should be worded more explicitly saying they “shall” be compensated rather than “may be”, said a state finance minister.
Jaitley said after the ‘GST roadmap discussion’ that states were in broad consensus about the tax reform. “Some language correction were suggested by some of the states. Of course, states have been raising some of the state-specific concerns. A number of them were outside GST, but some of them related to that,” he said.
Finance minister of Kerala and chairman of the Empowered Committee of State Finance Ministers KM Mani said there was a consensus that the Constitution Amendment Bill be passed immediately for implementing GST as scheduled, but some states have expressed concerns.
“The Centre has agreed for compensation (for states’ revenue losses) for five years when we migrate to GST. However, some states have expressed apprehensions and suggested that the compensation be permanent and not be limited to just five years. They have also suggested that its quantum should be enhanced,” said Mani.
The chairman also said that manufacturing states were of the view that 1% extra tax to be levied on inter-state sales was not sufficient and it needed to be raised to 2%. Producing states, which currently get the proceeds of Central sales tax on cross-border sales, want to protect this source of revenue. Under GST, taxes on inter-state sales would go to consuming states.
“States have expressed their views. The Union finance minister will assess them and take a final view,”said Mani.
Introduction of GST, which was promised in the BJP’s election manifesto, needs the Bill to be cleared by two-thirds majority in both the Houses of Parliament and be ratified by more than half the states. Jaitley’s meeting with state ministers on Wednesday was partly aimed at garnering support from other political parties. While the Bill may easily sail through in the lower house, the BJP is still a minority in the 245-member upper house with only 65 seats with its allies. The Congress continues to be the largest in Rajya Sabha with 69 members. To get Rajya Sabha majority of 123 seats, the BJP will have to wait at least till 2017 when a large number of members would retire.
“In view of the near unanimity on the Bill, which is a win-win situation for all, we will go ahead with the Constitution Amendment Bill in the current session,” said Jaitley. He said discussions between the Centre and the states about the revenue neutral rate (RNR) of GST were broadly converging in the same direction.
The minister said with the support of the Information Technology backbone that has been created, the governments will try and maintain the target date of April 1, 2016. “We are, as of today, quite optimistic about it,” he said.
Mani said the outstanding issues will be settled at the next meeting scheduled for May 7 and 8. “There is a general agreement that GST is a progressive legislation, which will reduce revenue leakage and, hence, all states are for it,”said the chairman.