GST: Punjab, AP raise red flag over ‘low’ revenue-neutral rate

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New Delhi | Published: December 9, 2015 6:50:55 AM

Most states agree that the decision on the rollout of GST is now more of a political decision than an economic one.

GST BillMost states agree that the decision on the rollout of GST is now more of a political decision than an economic one.

Even as the political slugfest continues to block the passage of the Constitution Amendment Bill for Goods and Services Tax (GST) in Rajya Sabha, several states have now raised red flags over the recently announced recommendations of the Centre-appointed committee on the revenue-neutral rate (RNR) for GST.

Officials of Punjab and Andhra Pradesh governments, on Tuesday, voiced their concerns, saying that the RNR at 15-15.5 per cent, as recommended by Chief Economic Adviser Arvind Subramanian-led committee, is “low” and will hurt the states’ finances when GST is rolled out.

“Some states would have high RNR and some would have low. According to our estimates, Punjab should have a higher RNR and we have always taken that stand. I am yet to see the report, but an RNR of 15-15.5 per cent is low,” finance minister of Punjab, P S Dhindsa, said. A senior Andhra Pradesh government official said that while they are yet to study the report of the CEA-led committee, the recommendation of RNR of 15-15.5 per cent is very low for the state, which is already revenue deficit. The suggestion of removal of 1 per cent additional levy will also hurt a state like Andhra Pradesh, the official added.

The CEA-led committee had recommended a RNR of 15-15.5 per cent and a standard GST rate of 17-18 per cent and removal of 1 per cent additional levy for inter-state trade of goods aimed at helping manufacturing states. The committee has also recommended keeping the GST rate out of the purview of Constitution, a demand which was also sought by the Congress in its eight-point dissent note to the Rajya Sabha select committee on finance. The Centre and the Opposition are also in talks with regard to establishment of dispute settlement authority. A state government official from Jharkhand, however, said the state’s finances will not be affected much as their revenues will also gain from proceeds of coal auctions.

Most states agree that the decision on the rollout of GST is now more of a political decision than an economic one. The state government officials are also awaiting the next meeting of the Empowered Committee of State Finance Ministers, the date for which is yet to be decided.

Touted as the country’s biggest indirect tax reform, the GST will subsume most Central and state levies including excise duty, service tax, value added tax, Central sales tax and could add as much as 2 percentage points to India’s gross domestic product.

The Constitutional Amendment Bill for GST is awaiting passage in the Upper House of Parliament, where the government does not have a majority. The Bill is expected to be tabled in the ongoing Winter Session. After passage from the Rajya Sabha, it needs to be ratified by 50 per cent of states.

The government is though working towards completing the work by March 31 next year to enable GST’s roll out from April 1, 2016.

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