State FMs debate GST, easy urge

Dated 21st November, 2015

State finance ministers called on Friday for a proposed Goods and Services Tax (GST) to be simplified but did not discuss what rate it should be set at, indicating scant progress on PM Narendra Modi's priority reform.

With less than a week until the winter session of parliament, Finance Minister Arun Jaitley missed the meeting of a high-level GST committee, which also lacks a permanent chairman after the last one quit amid a corruption scandal.

Manish Sisodia, deputy chief minister and finance minister of the Delhi city government, said the panel wanted to focus on simplifying administration of the GST rather than lowering the rate.

"Rates were not discussed today," said Sisodia, who chaired the meeting. A sub-committee was set up to decide on a threshold below which small businesses would be exempted from the sales tax, he told reporters.

Jaitley said this week his top prority for the parliamentary session starting on Nov. 26 was to convince the opposition to support the GST bill in the upper house of parliament, where the government lacks a majority.

Modi needs the backing of the upper house to pass a key enabling amendment to the constitution, but has faced entrenched resistance led by the opposition Congress party that he defeated in a general election 18 months ago.

His ruling nationalist party is on the back foot after suffering a heavy defeat in an election in the populous state of Bihar.

The GST, the most ambitious tax reform since independence in 1947, would unify Asia's third-largest economy into a single market, and could add as much as two percentage points to the economy, the government estimates.

A percentage rate has not yet been agreed but a range in the low-to-mid 20s has been discussed, leading to concerns that such a high rate would encourage tax evasion. Sisodia, speaking for Delhi, said he supported a rate of 25 percent.

Finance ministry officials say introducing the new tax could increase the revenues of the federal and state governments substantially as all consumers would pay taxes on most goods and services.

However, many state governments fear revenue losses as a result of GST being introduced, and a parallel discussion is also under way about how to compensate them, complicating efforts to reach a workable compromise.

The GST law would aim to cut red tape for taxpayers by replacing an array of federal and state taxes - ranging from 25 percent to 30 percent - while ending the practice of imposing a levy on goods coming from outside a state.

(Additional reporting by Nigam Prusty; Editing by Douglas Busvine and Jacqueline Wong)

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