Maharashtra government bats for 5-year GST compensation period

Dated 27th November, 2014

The Maharashrta government has urged the Centre to put in place a special mechanism for compensation to the states under goods and service tax (GST), and to extend the period for it to a minimum of five years against the proposed three.

It said this was necessary to protect the state’s huge manufacturing base and exports of manufactured goods to other states.

In its ambitious industrial policy, the The Bharatiya Janata Party (BJP)-led government, which came to power on October 31, has set a target of 12 per cent annual growth in the manufacturing sector and to achieve a 28 per cent share in the gross state domestic product for the manufacturing sector.

The state government, in a recent submission to the Centre, said in order to spur the growth in the manufacturing sector and the economy as a whole, the three-year period is too short to judge the outcome of any change in the tax structure.

“The commitment for longer time always boosts the confidence in taking up new challenges and therefore the GST compensation period should be a minimum five years instead of proposed three years,” a senior official. The official said the formation of a credible compensation mechanism will develop confidence level among the states for adoption of GST. He added the government also hoped that the introduction of GST will ensure less revenue leakage and compliance cost for the state trade and industry will also decrease. The move comes at a time when the BJP, which had criticised the previous Congress- Nationalist Congress Party (NCP) government for Maharashtra losing its pre-eminence in industrialisation and attracting investments, admits that the state is the number one destination and the government will have to step up efforts to retain its supremacy.

On rate of tax on services, the Devendra Fadnavis-led government has emphasised on the need to increase it in a gradual manner till it reaches the desired level.

The government has suggested that the Centre should start the revision of tax rate on services immediately so the rate will be reasonable at the time of introduction of GST.

(This article is published in Business Standard on 27th Nov, 2014)