Evolve consensus before introducing Constitutional Amendment Bill on GST, Tamil Nadu CM tells Modi

Dated 19th December, 2014

The Tamil Nadu government on Friday expressed its reservations on the Centre's move to introduce a Constitutional Amendment Bill on the goods and services tax (GST).

In a letter to Prime Minister Narendra Modi, chief minister O Panneerselvam said, "The current proposal of the central government to introduce a Constitutional Amendment Bill and then to evolve a consensus on various aspects of the GST, especially the actual tax rates and tax bands, etc., through the GST council, is not acceptable to us."

He said the state would rather suggest that the government of India should permit the empowered committee of state finance ministers to try and evolve a broad consensus on the critical issues before the enactment of the Bill.

"I urge you not to hustle through the Bill hastily as such a move is bound to have serious long-term implications for the fiscal autonomy and revenue position of the states. The government must ensure that the states' fears are allayed and a true consensus is achieved before such a far-reaching reform is attempted," Panneerselvam said.

Expressing apprehension at the loss the state is likely to face after the GST is rolled out, the chief minister said, "Since Tamil Nadu is a manufacturing and net exporting state, we have emphasized that before the enactment of the bill is taken up, the government should strive for a broad consensus on the important issues like compensation period and methodology, revenue neutral rates, floor rates with bands, commodities to be excluded from GST."

He said though the draft bill addressed the issue of compensation, there were still a number of concerns of the state that need to be addressed.

"The Bill provides for Parliament to enact law to provide for compensation to the states for such period which may extend to five years on the recommendation of the GST council. It is understood that the compensation is proposed to the extent of 100% for the first three years, 75% in the fourth year and 50% in the fifth year. This is not acceptable to us," the chief minister said.

For clarity on the implications of the Bill, it is essential to evolve a consensus amongst the states on the critical issues like revenue neutral rates and bands, threshold, clarity on dual control and compensation formulae under the aegis of the empowered committee before legislating on the GST.

"We have consistently been opposed to the idea of the GST council as a constitutional body as it compromises the autonomy of the states including in fiscal matters. In particular, we strongly object to the decision making rule and voting weightage which gives the Centre an effective veto in council," he said.

The state once against objected to the inclusion of petrol and diesel tax under the GST as well as non-granting of powers for states to tax tobacco products over and above the GST.

The chief minister wanted the Centre to allow Tamil Nadu retain 4% central sales tax as forgoing it entails a huge revenue loss annually.

(This article is published in The Times of India on 19.12.2014)