Modi Government to take further initiative on GST implementation
Dated 2nd October, 2014
Narendra Modi government has taken a significant step toward bringing closer the long-awaited goods and services tax (GST), the country's biggest tax reform, by readying the crucial draft constitutional amendment that's an essential prerequisite to rolling out the levy.
The Centre, financially better placed now with the economy showing signs of revival, will also clear pending compensation to states over the next couple of months in lieu of cuts in the central sales tax in its attempt to win them over and get them to accept the new tax, which is expected to be in place starting April 1, 2016.
The finance ministry held a review meeting on September 30. The draft amendment will be submitted for finance minister Arun Jaitley's approval when he rejoins next week after a break on account of ill-health and the long weekend. "We are ready with the draft" constitutional amendment, a senior finance ministry official told Economic Times.
GST will replace multiple state and central levies such as excise, service tax, value added tax and entry tax and create a national market while lifting GDP by 1-2 percentage points. The constitutional amendment that will allow states to tax services and the centre to collect taxes on goods from retail establishments is proposed to be introduced in the winter session.
Work is going on separately on legislation for central GST and an integrated-GST and model law for state GST.
The empowered committee has set up internal committees to draw up the legislation, the official said, adding that the effort is to have a robust GST.
Another finance ministry official said work is also on to keep procedures ready well in time.
The finance ministry has reached out to states to persuade them to get on board and assuage their concerns on all aspects of the new reform apart from the compensation owed to them.
The ministry, buoyed by improved fiscal position, is proposing to release a part of the Rs 34,000 crore compensation due to states in lieu of the CST cut.
This could come through the first supplementary demand for grants.
Hardening of positions and the Centre's refusal to provide compensation as demanded by states created acrimony, threatening to derail progress.
Tax experts welcomed the development but called for the greater involvement of industry.
"The government should now involve industry to understand the sector-specific issues in the proposed structure so that an efficient and effective GST law and compliance mechanism is created.
It is important all stakeholders agree to a GST structure with a wide base and low revenue-neutral rate for the tax to be effective and efficient," said Bipin Sapra, partner, tax and regulatory services, indirect tax, EY.