Priority to sort out issues related to VAT, says Modi

Bihar finance minister Sushil Modi, who was elected chairman of the empowered group of state finance ministers here on Monday, told FE that his immediate priority would be to sort out issues related to the framing of value added tax (VAT) rules for 2010-11.

On the crucial indirect tax reform of goods and services tax (GST), the implementation of which the empowered group is spearheading, he would rather wait for the Parliamentary standing committee looking at the relevant Constitutional amendment Bill to finanlise its views.

?The Bill, and our three drafts on it now lie with the standing committee. We are waiting for their (the committee?s) recommendations on the Bill. Only after that and when Parliament clears it, will my role kick in, in terms of talking to various state governments,? he said.

Modi?s comments signify that although the Centre was hopeful of building a consensus on GST with its backing of a BJP finance minister for the post of chairman of the empowered committee, Modi, mindful of his party?s rather ambivalent attitude over the issue, would buy time. This underscores the general perception that GST, which missed two earlier dates, might also miss a third one, that is April 2012.

The constitutional amendment requires two thirds majority in both Houses of Parliament and 50% of all state assemblies to clear it.

Most indirect taxes including excise duty, services tax and state VAT are to be subsumed in GST which is designed to be a destination-based tax on consumption that would avoid cascading of taxes. What is being planned is a dual GST with central and state components.

The Centre and states are unable to agree on three aspects of GST ?the threshold where tax kicks in, the rates, and how a common list of exemptions would be drawn up. Apart from BJP- ruled states, Tamil Nadu and UP are also yet to give wholesome support to the Centre?s plan although there is an understanding across the political spectrum that proposed comprehensive tax would boost revenue.

Modi?s appointment is seen as a boost to efforts by the finance ministry to push through the GST, which is being blocked by several states, including BJP ruled states like Madhya Pradesh and Chattisgarh. Modi, however, said his role in pushing the GST, if any, would only kick in after the parliamentary standing committee on finance tabled its report.

Sources in the BJP confirmed that the party was ?in principle? in favour of GST and the desire to iron out differences and of course, to give it a BJP stamp was what had driven the party to consent to Modi?s election as chairman of the group of finance ministers.

?As of now, my first priority will be to hasten the framing of rules on VAT for 2010-11, which haven?t been done till now and to sort out issues regarding purchase tax,? he said. He denied that it was only BJP ruled states which were blocking GST. ?Many states, including Uttar Pradesh and Tamil Nadu have issues,? he said.

The Centre wants purchase tax which is being levied at different rates by states to be subsumed in GST. There are also issues related to inter-state transactions due to the disparity in purchase tax rates among states.

?The mandate of the empowered group is not restricted to GST, there are many issues which come under it,? Modi said.

Modi had been selected as chairman of the group after Asim Dasgupta, former West Bengal finance minister resigned following his and the Left Front?s defeat in Assembly polls. Others who lobbied for the job included Dasgupta?s successor Amit Mitra and Kerala finance minister K M Mani.

After the meeting with the empowered committee, finance minister Pranab Mukherjee said: ?The substantive business of today?s meeting was the election of the chairman. Sushil Modi, the deputy chief minister and finance minister of Bihar, has been elected unanimously as the chairman of the empowered committee of state finance ministers. Now, they (state FMs) are having discussions. Some formalities will have to be worked out and after that, the committee will work out a detailed work programme.?

Interestingly, Gujarat finance minister Saurabh Bhai Patel, one of the opponents of the GST, did a U-turn on Monday. He said, ?We are all very positive that under the able leadership of Modi, all the issues which have been pending between the Centre and states, all the issues related to VAT and GST, will be amicably resolved with consensus.?