States on Thursday demanded 100 per cent compensation for five years for any possible loss of revenue following the roll-out of goods and services tax (GST) from April 1, 2016, as opposed to the Centre’s proposal of compensation in a phased manner. Further, states also sought exemption of entry and purchase tax from the ambit of the GST, ahead of the meeting of the empowered committee of state finance ministers on GST with the select committee of Parliament on June 16.
“Most of the states welcome GST. However, there are concerns regarding compensation. The Central government says that it will be given in a phased manner, while states are demanding full 100 per cent compensation for five years,” KM Mani, empowered panel chairman, said after a meeting of the empowered committee.
According to the Constitution (122nd Amendment) Bill, 2014, compensation will be provided to the states for loss of revenue arising on account of implementation of the GST “for such period which may extend to five years. The exact compensation can be worked out only when the provisions of the Bill are implemented.” However, finance minister Arun Jaitley had said that states would be given 100 per cent compensation in first three years, 75 per cent in the fourth year and 50 per cent in the fifth year.
Further, Mani, who is also the finance minister of Kerala, said that some states have demanded keeping entry tax and purchase tax out of the GST net. “Some states said that entry tax should not be abolished as the proceeds go to local bodies. Also there is a demand that purchase tax should not be merged with GST and if it is done, then the Centre should give compensation for 15 years,” he said.
While Punjab and Haryana have been raising concerns on the inclusion of purchase tax in the GST net, Maharashtra has been voicing its concerns over the inclusion of entry tax in the new indirect tax regime.
Mani, however, refused to divulge details of the suggestions that will be made to the select committee later this month. The Bill, which was passed by the Lok Sabha last month, was referred to the committee after intense pressure from the opposition.
Further, in the meeting several consuming states also raised the issue of the additional one per cent levy that is proposed to be provided to manufacturing states for two years over and above the GST rates.
A senior state official who attended the meeting said that the additional levy threatens to distort the very structure of GST as “it will again result in cascading of tax just as in the case of central sales tax”. Also, states want assurance that the compensation will be given for full five years. “The language in the bill reflects that the compensation may be subjected to someone’s whims. States want an independent self-regulated automatic mechanism for compensation in the constitution itself,” the official added.