Tamil Nadu held out at a key meeting of state finance ministers Tuesday to roll out a nationwide goods and services tax (GST) regime next year and Union Finance Minister Arun Jaitley said its suggestions have been noted. He said states are unanimously against the idea of specifying a GST ceiling rate in the Constitution amendment Bill which the government hopes to push through in the monsoon session of Parliament.
A cap of 18 per cent on the GST rate is one of the three main demands of the opposition Congress which has made a strong pitch for the ceiling rate to be specified in the Bill itself.
The Bill is stuck in Rajya Sabha where the ruling coalition lacks numbers.
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Speaking to reporters after a meeting of the empowered committee of state finance ministers where 22 states were represented, Jaitley said: “Every state has given its detailed view on the GST. Virtually every state has supported the idea of GST. One state (Tamil Nadu) has said they have reservations on GST and have offered a few suggestions on how to make the GST implementable. We will look into it.”
Tamil Nadu Finance Minister K C Veeramani told The Indian Express: “We are opposing GST. We have given our objections in writing to the empowered committee.”
The empowered committee also approved a model GST law under which the tax will be imposed at the first point of financial transaction and online transactions too will attract a uniform GST. The model GST law, which has 162 clauses and 4 schedules, has also suggested jail terms of up to 5 years and a fine for violation of provisions of the statute.
The GST aims to integrate the country into a common market by removing barriers to trade that exist across states. It will subsume all indirect taxes of the Centre and states, including excise duty, value-added tax, service tax and octroi.
At Tuesday’s meeting, consensus was, however, elusive on two contentious issues — the revenue neutral rate under GST (a tax rate at which states do not lose revenue) and the issue of dual control (businesses having to file details of sales transactions with both the central and state agencies). Both these issues will be discussed at the next meeting of the empowered committee in July.
Congress-ruled Karnataka’s PWD Minister H C Mahadevappa and Kerala’s Finance Minister Thomas Isaac were among those who attended the meeting.
Concerns flagged by Tamil Nadu at Tuesday’s meeting include the potential revenue loss for states and the issue of “loss of fiscal autonomy” after the transition to GST.
Punjab Finance Minister Parminder Singh Dhindsa said issues like compensatory mechanism for GST and dual control will continue to be deliberated but “we have agreed to go ahead with GST… In fact, every participant today agreed to the basic idea of GST implementation”.
Jaitley said he has assured states that any notional losses suffered by them on account of a switch to the GST regime will be compensated by the Centre. He also said that the government is flexible on the demand for scrapping a 1 per cent additional tax on inter-state sale, adding it will lead to a higher outgo from the Centre to producing states.
He said states had a unanimous view against specifying the cap in the Constitutional amendment Bill. “There is complete consensus on the fact that there should be no constitutional cap because contingencies might arise in future as far as the quantum of taxation fixed by the GST council is concerned.”
“In the first five years, if there is loss in revenue as far as any state is concerned, the liability of the Centre is to compensate for the revenue and I have categorically stated that we have undertaken it and, therefore, the state should not have any doubt.”
“There is, however, no deadline on GST implementation. But we can say that a broad consensus on its implementation has been achieved and we are moving with positive intent.”
He said it will be essential for the Constitution amendment Bill to be passed in the monsoon session. The passage of this Bill will have to be followed by a ratification of the Bill by a majority of states. After this, the central GST and the integrated GST legislations will have to be passed by Parliament and state GST laws by states by the end of the year.
At the next meeting of the empowered committee, central government officers are expected to make a presentation on the possible revenue neutral rate calculations. A decision is also expected on sorting out the dual control issue after presentations by tax experts.
“Since the administration of state and central taxes will merge into one, there is need to bring about a seamless system. It should not lead to conflict and the process should work out harmoniously between the Centre and the state,” Jaitley said.
West Bengal Finance Minister Amit Mitra, who heads the empowered committee, said the panel will again meet in the second week of July to discuss these two issues.
“On the issue of dual control, it has been agreed that up to Rs.1.5 crore, states will administer the taxes and after that threshold, a seamless process will have to be worked out,” he said.
“Mamata Banerjee has extended full support for GST… All states supported GST today. Certain reservations of Congress-ruled states are issues that belong to the operational domain of GST and can be discussed and sorted out,” he said.