Chairman of the empowered committee of state finance ministers Sushil Modi is playing a pivotal role in building consensus among states to roll out the goods and services tax (GST). Speaking to Bijay Shankar Patel of FE, he said that a negative list on services would be significant in increasing revenue, and is a step forward in rolling out GST. However, he warned that discussions to implement GST could be affected if states are not fully compensated for the losses due to reduction of Central Sales Tax (CST). Excerpts from the interview:
The empowered committee has given in-principle approval to negative list for taxation of services. How significant would be the shift from the positive-list approach to the negative list in rolling out GST and increasing revenue?
It is very important because the concept of negative list is there in most countries. I don?t know how many services would fall under tax net after introduction of the negative list. However, the number (of taxable services) will increase. In the course of implementing the negative list, the Centre might face some issues and so, the experience of the Union government would be helpful for states. It would be easier for states to deal with a negative list on services after GST is introduced. The negative list would also help us estimate the tax base and potential revenue generation from services.?
The state finance ministers are meeting finance minister Pranab Mukherjee on January 18 for?pre-Budget consultations. What are your expectations from the Budget as far as GST is concerned?
We have already conveyed our concerns on GST to the union finance minister. So in that meeting, we would mostly discuss about Central Sales Tax (CST) compensation. We want this issue to be resolved quickly. There is a feeling among the states that they are being betrayed. There is a commitment from the Centre to compensate us for loss of revenue and so states should not feel that they are being betrayed or they have to beg before the Central government. States are incurring losses due to reduction of CST as the Centre?s formula for calculating CST compensation is flawed. The issues that the Centre is raising now are not understandable. They should not annoy states because it vitiates the atmosphere. We would raise this issue when we meet the Union finance minister on January 18.
So are you saying that if CST compensation issue is not resolved then the discussion on GST could also be affected?
Naturally. Every time they (states) would start discussing GST, they will have CST compensation issue on the back of their minds. So, it would become difficult to go ahead on GST. CST compensation is a minor issue but it should not become a big issue. We are going for a big reform and so, the government of India should honour its commitment. It would create a congenial atmosphere for the introduction of GST.
The GST constitutional amendment Bill is currently with the standing committee of finance.
After finalising the direct tax code, the committee will take the issue of GST. Standing committee chairman Yashwant Sinha had asked for our opinion on the GST constitutional amendment Bill. I have given a detailed report to the committee, which consists my views as EC chairman and consolidated view of the states. I have mentioned the issues where there is general consensus and the issues where there is difference of opinions.
It has been four years since the GST talks started. Do you think now the central leadership of all parties should sit together to resolve the issue?
The issues where states had agreed were also not incorporated in the GST constitutional amendment Bill introduced in Parliament. However, all parties would be represented in the standing committee and so, the parliamentary panel should take a call on those issues on which states were more agreeable.
