The empowered group of finance ministers and the Union finance ministry officials are mulling over a clearing house model to distribute the revenue between the Centre and states under the goods and services tax (GST) model proposed to be implemented from April 1,2010. However,some states have said the model will work only if the clearing house is independent and has a statutory standing akin to the Reserve Bank of India.
A clearing house model is being proposed so that under the dual taxation structure,the portion of revenues for the Centre and states is divided as per the agreement under the revenue neutral rate by an independent and neutral agency. This model is currently being used in the European Union by some countries.
States of Maharashtra and Tamil Nadu have already voiced their concerns over the clearing house mechanism. We want the government to prepare a transparent model and only then put into force, Maharashtra state government officials told The Indian Express .
Maharashtra fears a loss of over Rs 4,500 crore in revenues a year with the GST coming into force. Even though the Centre has ensured us that there will be compensation,we first want a clear set of rules, an official said. The state is a major exporter of consumption goods,chemicals,machinery,gems and jewellery. With the tax being destination based,a huge loss is anticipated by the state. We earn very less revenue from services,which will be left under our jurisdiction once GST rolls out, the official added. Under the destination based concept,tax is levied in the state where the product is consumed and not produced.
Tamil has also raised similar concerns. The state government claims that the Centre has not compensated its revenue losses after the value added tax (VAT) was brought into force.