GST issues: Still no consensus between Central government, states

Dated 12th November, 2014

As the government works towards implementing the Goods and Services Tax (GST) from 2016, consensus between the Centre and states on crucial issues remains elusive.

After a meeting of the Empowered Committee (EC) of State Finance Ministers held here on Tuesday, chairman Abdul Rahim Rather said, “States have already said that petroleum, alcohol, tobacco should be excluded from GST. We are waiting for a response from the Centre. We have not received the revised draft Bill. We will discuss and offer our comments after we receive it.”

While the Centre is of the view that petroleum should be a part of the GST structure, states are against it. Further, the Centre has ruled out the proposal of constitutionally providing for GST compensation while the states are insisting on their demand for such a structure. The Centre has included its views on the two issues in the revised Bill, which the EC is yet to receive.

Further, the two stakeholders also differ on the issue of threshold for levying the tax. In its August meeting, the EC had decided to peg the threshold for the levy of both Central and state GST at Rs 10 lakh.

However, “In September, the Centre wrote to us suggesting that this decision of the EC should be reviewed. It suggested that the limit should be Rs 25 lakh. Even if it is not Rs 25 lakh, Rs 10 lakh limit should be increased … But finally the Committee took a decision that they will go by the decision that is already taken that is Rs 10 lakh,” Rather said.

As such the final call on threshold will be taken by the proposed GST Council. The Bill proposes to set up a Council that will decide on matters including tax rate and threshold. Interestingly, SAD-BJP- led Punjab has supported the Centre’s proposal of raising the limit to Rs 25 lakh. It argued that small traders should be kept out as their contribution to the tax revenue is minimal.

The Bill that was introduced by the UPA government in 2011 in Parliament has lapsed and the new government has to introduce it again. Finance minister Arun Jaitley has indicated that the Bill may be introduced in the Winter Session. The roll out of the new indirect tax regime has already missed several deadlines.

Rather, however, expressed hope that 2016 deadline for roll out is implementable. The Centre has also suggested the revenue-neutral rate (RNR) for the GST — 13.91 per cent for states and 12.77 per cent for the Centre.

“We have given states 7 days to comment on the RNR report. We will send it to the National Institute of Public Finance and Policy because RNR is based on 2011-12 figures and we have requested them to look at it keeping in mind 2013-14 figures,” he said.

(This article is published in The Financial Express on 12th Nov, 2014)