Tamil Nadu CM Jayalalithaa urges Centre to strive for ‘broad consensus’ on GST

CM Jayalalithaa asks Centre to strive for broad consensus on GST, including compensation period.

By: Press Trust of India | Chennai | Published: September 11, 2014 2:03 pm
Chief Minister Jayalalithaa asks Centre to strive for broad consensus on GST, including compensation period and methodology. (PTI) Chief Minister Jayalalithaa asks Centre to strive for broad consensus on GST, including compensation period and methodology. (PTI)

The Tamil Nadu government has said the Centre should strive for a ‘broad consensus’ on many aspects related to Goods and Services Tax (GST) and address states’ concerns on ‘permanent revenue loss’ in this regard.

This was stated in a letter to Union Finance Minister Arun Jaitley by Chief Minister J Jayalalithaa, who also wrote to her state counterparts in a bid to mobilise support on GST issues raised by her.

In her September 10 letter, which was released by the state government today, Jayalalithaa recalled she had submitted a letter to him in person in June this year, highlighting some of the ‘crucial’ financial issues pertaining to Tamil Nadu, including the proposed GST.

Pointing out to a revised draft Constitution Amendment Bill circulated on June 20, 2014, she said that provisions relating to Declared Goods had been removed and alcoholic liquor for human consumption kept outside the GST.

“It has been brought to my notice that during the recent meeting of the Empowered Committee of State Finance Ministers held on August 20, 2014, consensus was reached amongst states on some more issues.

“(This is) including that the threshold limit for levy of GST on goods and services should be fixed at Rs 10 lakh; the threshold limit for compounding scheme should be fixed at Rs 50 lakh with a floor rate of tax at 1 per cent; and that the Exemption list under GST should be common for both CGST and SGST. I do hope that the Government of India would accede to all these points,” she said in a letter.

States should be allowed to grant exemption on all goods of local importance without any restrictions, she said, adding they should be vested with control of dealers having a turnover up to Rs 1.5 crore both for intra-state and inter-state supply of goods and services, whereby the ‘Centre can avoid expanding its administrative machinery while collecting CGST (Central GST) from such dealers.’

She disagreed with Government’s proposal to bring petroleum products under GST, saying it would ‘diminish’ the limited revenue resource of the states.

Further, the dual levy system of states’ tax on petroleum products in addition to GST was not acceptable, she said.

Jayalalithaa also opposed a proposal stating GST component of the levy on petroleum products can be at a very low rate or even zero-rated for an initial period of at least three years to avert any possible sudden revenue loss to the states.

She said there was no certainty that the revenue gain on account of levy of tax on services and on import of goods in this period would be substantial enough to offset revenue loss on account of bringing petroleum products under GST ambit.

“Nor is there any guarantee that GST will not be prematurely imposed on petroleum products. Since the resources of the states are already limited, I strongly urge that petroleum and petroleum products should be kept completely outside the ambit of GST,” she wrote to Jaitley.

She said aspects like threshold limit for levy of GST, goods and services which are to be exempted, rates including floor rates with bands and taxes to be subsumed under GST, were some of the crucial factors for determining the Revenue Neutral Rate (RNR).

She noted that the ‘Place of Supply of Service Rules’ which are to be framed would also play a vital role in estimating tax revenue from services to the States.

“Without finalising these important elements, it may not be feasible to accurately calculate the State-wise Revenue Neutral Rates. In any case, the cumulative nominal rate of GST (CGST+SGST) cannot be fixed very high, as it would appear regressive and this is bound to keep the GST rate well below the Revenue Neutral Rate (RNR) for a state like Tamil Nadu. Hence, there is bound to be huge revenue loss,” she said.

With Tamil Nadu being a manufacturing state, it stands to permanently lose substantial revenue if GST is implemented, ‘due to the sudden shift of levy from the point of origin to the point of destination,’ she said.

“In addition to the revenue loss arising out of phasing out of CST and transfer of Input Tax Credit on inter-state sales and inter-state stock transfers, the state also stands to lose substantial revenue arising out of subsumption of other taxes such as entertainment tax, luxury tax, entry tax on vehicles and betting tax,” she told the Finance Minister.

The Chief Minister called for an independent compensation mechanism and methodology for revenue losses suffered by the states for implementation of GST and insisted that it should not be a mere legal provision as ‘suggested by’ officials, but one that should be enshrined in the Constitution itself and ‘not reduced to an instrument of Union policy which may change from time to time.’

The Chief Minister said before taking up enactment of the Constitutional Amendment Bill on GST, the Centre should strive for a broad consensus on important issues relating to GST.

These include compensation period and methodology, revenue neutral rates, floor rates with bands, commodities to be excluded from GST, IGST (Integrated GST) Model and clarity on dual administrative control, she said adding the consensus will help allay the genuine apprehensions of states over loss of fiscal autonomy and permanent revenue loss.

In her letter to chief ministers of other states, Jayalalithaa enclosed a copy of her communication to Jaitley.

She told them that while the intention of the revised draft Constitutional Amendment Bill on GST was to provide a common national market for goods and services, there were a number of serious concerns on the impact the proposed GST would have on the fiscal autonomy of states and the ‘resultant huge permanent loss such a taxation system would cause.’

“I do hope you will agree with my views that, before enactment of the Constitutional Amendment Bill on GST is taken up, the Government of India should strive for a broad consensus on the important issues relating to GST without compromising the fiscal autonomy of the states,” she said.

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