Close on the heels of the Lok Sabha nod for the Goods and Services Tax (GST) Bill, the empowered committee on GST has got cracking with its two-day deliberations at Kovalam. The meeting of state finance ministers expects to iron out differences over revenue-sharing between state governments and the Centre, apart from fine-tuning rate details.
“There are certain apprehensions among the producing and consuming states regarding revenue implications,” said GST empowered committee chairman KM Mani. GST, a new indirect tax regime, is set to be rolled out across the country on April 1, 2016. The key question is whether this time schedule is realistic enough.
Punjab is among the prominent states to have vociferously protested about an expected loss of state revenue under the new regime. Some political outfits have even demanded that the state seek compensation for the next 15 years in advance. In the Lok Sabha, the government had sought to allay these fears, saying the new uniform indirect tax rate would be much less than the 27% recommended by an expert panel.
“The purpose of the meeting is to arrive at a consensus and this is achievable by Friday,” Mani, who’s also Kerala finance minister, told mediapersons.
Addressing the committee meeting, Mani said: “Broadening of the GST tax base and subsuming various Central and state indirect taxes into GST proposed in the legislation are expected to be revenue-neutral, both for the Centre and states. The quantum would depend on the rates fixed. These rates are to be worked out to augment the financial resources of the states, consequent to the introduction of the GST system. Further, the enabling legislation specifying the parameters for sharing IGST (Innovative Way of Handling Inter-State Transactions) is a matter of concern.”
Mani’s speech focussed on the need for “an effective GST implementation mechanism”. He said: “The taxation apparatus of the Union and the states should work in coordination and unison by sharing information and ensuring smooth administration.”
He urged that the Constitutional amendment should clearly provide for the levy of GST on destination principle in the supply of goods and services, so that chances of inter-state disputes are minimised and the objective of trade facilitation is fully realised. He also suggested that ‘a time-frame of one year’ from the passing of GST Act be fixed for Parliament enacting “the apportionment of the resources between the Union and the states”.
On the issue of slapping tax on textile and sugar, the empowered committee noted that Centre had removed additional excise duty on sugar and textiles and that the states were free to impose VAT on them. To prevent diversion of trade, all states need to take a unanimous decision to impose tax on textiles and sugar. Since sugar is supplied at subsidised price through PDS to the weaker sections of the society, imposition of tax on sugar was unlikely to have any adverse consequences, the committee noted.
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