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| States seek more say under GST |
| Bs Reporter / New Delhi Jul 25, 2010, 00:08 IST |
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State governments are still speaking in different voices on the proposed goods and services tax (GST), despite the Empowered Group of Finance Ministers’ effort for a consensus. At the National Development Council (NDC) meeting here today, state chief ministers raised concerns about a host of issues, including those on loss of flexibility in tax administration.
“The final GST rate should not compromise the ability of states like Karnataka with a high tax effort. The rate should be treated as the floor rate, without limiting states’ autonomy,” said Chief Minister B S Yeddyurappa.
Chhattisgarh Chief Minister Raman Singh cautioned against the impact of GST and the need to ensure that “states’ economy and fiscal autonomy are not affected adversely”.
Union Finance Minister Pranab Mukherjee had unveiled a three-year map that envisaged convergence into a single GST rate of eight per cent from the third year of implementation. While the service tax rate under the Central GST was proposed to be fixed at eight per cent from the outset, he had said in the first year, goods would be taxed at two rates, of six per cent and 10 per cent. In the second year, the standard rate is proposed to be lowered to nine per cent, while retaining the lower rate at six per cent.
Mukherjee had urged the states to adopt a similar structure, so that the combined GST levy on goods in the highest slab was 20 per cent in the first year and 16 per cent in the third.
The finance ministry fears more demands like Singh and Yeddyurappa when the Empowered Group meets again. If the rates proposed by the Centre are treated as the floor, the final burden will be much higher than the 12 per cent combined levy proposed by a 13th Finance Commission task force.
It was not only the Bharatiya Janata Party-ruled states which raised concerns at the NDC meeting. Haryana’s Bhupinder Singh Hooda said: “States should be suitably compensated for loss of revenue due to introduction of GST.”
Mukherjee has already assured states on compensation of up to Rs 50,000 crore, in addition to covering the loss of revenue due to withdrawal of Central Sales Tax.
Punjab’s Parkash Singh Badal objected to the subsuming of purchase tax in the proposed GST model, saying the state would lose Rs 1,200 crore of revenue annually. “Even if the government gives compensation, it will be only for a few years. Thereafter, the state is going to lose substantial revenue on a permanent basis,” he added.
The Centre, which plans to push legal amendments during Parliament’s monsoon session that starts on Monday, is trying to build a consensus for GST introduction from April.
“Reform of tax structure and tax administration is an important step in resource mobilisation. The GST is especially important in this context and I would urge the chief ministers to give full support to the effort to implement GST with effect from April 1, 2011,” Prime Minister Manmohan Singh said in his inaugural address at the NDC meeting.
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