The Centre on Thursday night appeared headed towards a breakthrough on getting states on board for a rollout of the Goods & Services Tax (GST) after finance minister Arun Jaitley did some tough talking. Finance ministry officials are now hopeful of introducing the bill in the current session of Parliament.
Jaitley swung into action after state finance ministers rejected the draft GST Constitutional Amendment Bill in the afternoon. They said the provisions did not take into account their concerns such as the issue of entry tax and staunchly opposed the move to include petroleum under the GST ambit.
However, after spending 11 hours trying to reach a common ground on the contentious issues, the empowered committee's chairman and J&K finance minister Abdul Rahim Rather said, “We have made headway.“
In the afternoon, Rather had said there was no consensus between the Centre and the states.
The change in stance came after Jaitley assured states the Centre would take care of any revenue loss due to the rollout of GST. However, he rejected their demand to exclude petroleum and tobacco from the ambit of the new tax regime. States were told the Constitution gave the right to tax tobacco to the Centre. In case of petroleum, the ministry dug out minutes of a meeting where states had agreed to keep oil products within GST. On the second concern related to providing for compensation for five years after GST rollout, the Centre appeared to go along with the states. The Union government is also willing to address the concern related to including the compensation provision in the bill. Besides, the finance ministry is working out a solution to deal with the worries of revenue loss to “manufacturing“ states such as Gujarat and Maharashtra. It is not clear how the Centre plans to deal with the issue of entry tax, which states want to be retained, citing revenue implications.
While J&K FM Abdul Rahim Rather said a solution would be found within a week, a finance ministry official remarked that “a week is too long in politics“ and the government would try to introduce the bill in the current session of Parliament.States such as West Bengal are, however, still not on board. “GST cannot be introduced at the cost of loss of state revenue meant for development of people,“ Bengal finance minister Amit Mitra said.
Although Gujarat is one of the major protesters, the Modi government is confident of getting the state on board. Its calculations to push the GST legislation hinge on control in several states where the party is in power. In addition, it is banking on support from Punjab and Andhra Pradesh along with states such as Bihar and Uttar Pradesh, which stand to gain from the introduction of GST. The government also believes that it has support from Kerala and Karnataka, two Congress-ruled states. In an action packed evening, Jaitley proposed a formula to break the impasse and urged states to reconsider their stand, while staying firm on the states demands for exemptions. In a bid to bridge the trust deficit between the states and the Centre, Jaitley had approved the release of Rs.11,000 crore as compensation for loss on account of Central Sales Tax which had been pending since 2010. He had also vowed to pay the pending amount as he moved to ensure that the states come on board for rolling out the tax reform measure which has the potential to add significantly to government revenues and overall economic growth.
Implementing GST, the most ambitious indirect tax reform, is a centrepiece of the Narendra Modi government's reform agenda. The government is hopeful of introducing the constitutional amendment bill which will pave the way for rolling out GST in the current winter session of Parliament. The tax reform measure has missed several rollout dates in the past.
Jaitley swung into action after state finance ministers rejected the draft GST Constitutional Amendment Bill in the afternoon. They said the provisions did not take into account their concerns such as the issue of entry tax and staunchly opposed the move to include petroleum under the GST ambit.
However, after spending 11 hours trying to reach a common ground on the contentious issues, the empowered committee's chairman and J&K finance minister Abdul Rahim Rather said, “We have made headway.“
In the afternoon, Rather had said there was no consensus between the Centre and the states.
The change in stance came after Jaitley assured states the Centre would take care of any revenue loss due to the rollout of GST. However, he rejected their demand to exclude petroleum and tobacco from the ambit of the new tax regime. States were told the Constitution gave the right to tax tobacco to the Centre. In case of petroleum, the ministry dug out minutes of a meeting where states had agreed to keep oil products within GST. On the second concern related to providing for compensation for five years after GST rollout, the Centre appeared to go along with the states. The Union government is also willing to address the concern related to including the compensation provision in the bill. Besides, the finance ministry is working out a solution to deal with the worries of revenue loss to “manufacturing“ states such as Gujarat and Maharashtra. It is not clear how the Centre plans to deal with the issue of entry tax, which states want to be retained, citing revenue implications.
While J&K FM Abdul Rahim Rather said a solution would be found within a week, a finance ministry official remarked that “a week is too long in politics“ and the government would try to introduce the bill in the current session of Parliament.States such as West Bengal are, however, still not on board. “GST cannot be introduced at the cost of loss of state revenue meant for development of people,“ Bengal finance minister Amit Mitra said.
Although Gujarat is one of the major protesters, the Modi government is confident of getting the state on board. Its calculations to push the GST legislation hinge on control in several states where the party is in power. In addition, it is banking on support from Punjab and Andhra Pradesh along with states such as Bihar and Uttar Pradesh, which stand to gain from the introduction of GST. The government also believes that it has support from Kerala and Karnataka, two Congress-ruled states. In an action packed evening, Jaitley proposed a formula to break the impasse and urged states to reconsider their stand, while staying firm on the states demands for exemptions. In a bid to bridge the trust deficit between the states and the Centre, Jaitley had approved the release of Rs.11,000 crore as compensation for loss on account of Central Sales Tax which had been pending since 2010. He had also vowed to pay the pending amount as he moved to ensure that the states come on board for rolling out the tax reform measure which has the potential to add significantly to government revenues and overall economic growth.
Implementing GST, the most ambitious indirect tax reform, is a centrepiece of the Narendra Modi government's reform agenda. The government is hopeful of introducing the constitutional amendment bill which will pave the way for rolling out GST in the current winter session of Parliament. The tax reform measure has missed several rollout dates in the past.
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