Centre, states close to agreement on subsuming fuel taxes in GST

Written by fe Bureau | New Delhi | Updated: Jan 30 2013, 09:40am hrs
Central and state governments on Tuesday came closer to an understanding to subsume petroleum taxes in the proposed goods and services tax (GST), with a facility for states to impose an additional tax over the GST without the input tax credit facility. This, it is felt, will help expand the coverage and the base of the unified indirect tax regime, while addressing the problem of businesses in the chain suffering from tax cascades, if petroleum is kept outside the network. Taxes on petroleum account for close to 13 % of the Centres tax revenue now while it accounts for nearly 30-40 % of states revenue.

Sushil Kumar Modi, deputy chief minister of Bihar, who heads the panel of state finance ministers on GST, said Tuesdays meeting in Bhubaneshwar put an end to the deadlock on many issues which have so far stalled the introduction of GST. He said three panels will be set up to work on other issues, including GST to be levied on inter-state trade, dual Centre-state controls and a revenue-neutral tax rate.

Although some proposals from independent agencies for a revenue-neutral GST rate were reviewed on Tuesday, the discussions ended nowhere near consensus, sources who were present at the meeting told FE.

The Union government and states have, however, come to a broad consensus on ushering in GST from 2014-15, while also retaining flexibility for states to join in later under a phased implementation model. The Union government and states had on Monday sorted out a major dispute related to compensating states for their loss of revenue from the reduction in Central Sales Tax, the proceeds of which go to states.

The empowered committee discussed two models of inter-state GST (iGST) on inter-state transactions with some states with a strong manufacturing sector, such as Gujarat, expressing the view that that if iGST proceeds go only to the consumption states, it would be unjust to them. The iGST collection, appropriation and proceeds sharing have been discussed at some length, while a final view being left to be taken at the next meeting of the committee, a source said.

The Empowered Committee also discussed some possible administrative issues arising from small traders being subject to dual control of the Centre and states in the GST regime. While the GST threshold turnover is likely to be R10 lakh, it is felt that for traders with turnover at this level, there could be issues concerning the implementation of the central GST component. It is proposed that for administrative efficiency, small taxpayers, as defined below a certain turnover, will be accountable to states for day-to-day matters such as registration, collection in case of both the central and state GST components. Businesses above this turnover level will be accountable to both the central and state authorities. The existing threshold exemption for state VAT is R2 lakh to R10 lakh, R8 lakh for service tax and and R1.5 crore for central excise.

The union government has more or less accepted states demand for doing away with the proposed Dispute Settlement Authority chaired by a former Supreme Court judge or a former High Court chief justice. Instead, the GST Council, a body of central and state finance ministers will adjudicate on disputes. States may also be allowed to raise the threshold for GST by a narrow band to exclude certain industries from GST to mobilise revenue during calamities.

The central government has agreed to make necessary changes in the Constitution Amendment Bill bill to accommodate the consensus achieved, said Modi, adding that New Delhi will convey this decision to the parliamentary standing committee led by BJPs Yashwant Sinha, that is reviewing the Bill.