The road to Goods and Services Tax (GST), India?s most ambitious indirect tax reform, could turn out to be longer. This is because there is a slim chance of the requisite number of state assemblies endorsing the Constitutional Amendment Bill for this purpose this fiscal. FE spoke to a clutch of state finance ministers on this issue. All of them remained sceptical about meeting the schedule of implementing GST by April 2012.
The lethargy is despite the fact that GST is being seen as solution for not only cascading of taxes, but also one of the tools to curb the black economy, thanks to its ability to capture the supply chain for goods and services almost in their entirety.
Although these ministers appreciated the desirability of GST, many of them did not hide concerns that it could lead to erosion of states? fiscal autonomy. While BJP-ruled states continued with their objection to GST, Bihar, ruled by BJP-JD (U) alliance, has come out in full support. However, its finance minister too did not foresee the possibility of the tax being implemented from April 2012.
This indicates that GST implementation, which has already missed schedules twice ? April 2010 and April 2011 ? would take longer. The Centre has already had to compromise a lot on the integrity of GST, with many import taxes including those on petroleum kept out of its purview.
In this year’s Budget Session, the government introduced a Constitutional Amendment Bill in the Lok Sabha to facilitate the GST launch. The Bill has to be passed by a two-thirds majority in both Houses and ratified by at least 15 state Assemblies to take effect.
Sushil Modi, Bihar deputy chief minister holding finance portfolio, said on Tuesday that GST would be a ‘historic reform’. ?I think states will benefit from introduction of GST. In fact, in its election manifesto, BJP has spoken for the GST reform. But unless there is consensus at the political level, we are unlikely to make much progress on GST,? Modi said. ?I don?t foresee the possibility of GST getting implemented in 2012,? he added.
Modi stressed that it would be unfair to construe that any political party is stalling the process. ?States have their concerns regarding compensation, threshold limits and the structure of GST. But it cannot be linked to the ideology of any political party. So far, even the DMK (and BSP) was opposing it. States have their concerns and the need is to address their concerns.?
The government is planning a dual GST with central and state components being applied on roughly the same base. Some states are jittery that the proposed Centre-state council in the GST regime would virtually undermine states? constitutional rights to devise tax policies and determine rates.
Kerala finance minister KM Mani said the state is ready for GST but is currently focused on its first Budget.
Mani said GST would assume priority for the state after its Budget is unveiled. Madhya Pradesh finance minister Raghavji said the GST Bill is against the interests of states and their fiscal autonomy.
?The Centre is trying to eat into the powers of state governments; therefore, we have opposed it,? he said. Raghavji said if most taxation powers are given to the Centre, states will be reduced to mere ?municipalities or corporations, having to beg for compensation.?
Another reason that has adversely affected the consensus-building process is the absence of a head of the empowered committee of state finance ministers, which until recently was chaired by Asim Das Gupta, who lost elections in the West Bengal Assembly elections. Finance minister Pranab Mukherjee has suggested Modi head the committee, but he has refused citing his engagements in Bihar.
?The GST rollout will depend on how fast the Parliamentary standing committee sends the Bill to Parliament. If it sends by the Winter Session, Parliament would have enough time to vote on it and the GST could be implemented by end of 2012,? Ernst & Young tax partner Satya Poddar said.
GST will replace the multitude of central and state indirect taxes and create a common market across India for goods and services.
Indirect taxes such as excise duty and additional excise duty, service tax, CVD, all surcharges and cesses, VAT, CST, luxury tax and entry tax will be subsumed into GST, the 13th Finance Commission had said in its report.
This would lower prices and remove distortions, besides simplifying the tax regime.
Industry chambers are in favour of early introduction of GST. It will be the largest reform since the industrial de-licensing of 1991 and according to Vijay Kelkar, who headed Thirteenth Finance Commission, could add $500 billion to India’s GDP.