GST update

The Centre and state governments have reached a broad understanding on the structure of the proposed goods and services tax (GST), raising hopes of an early rollout of the UPA government’s ambitious indirect tax reform.
The central government has agreed to drop the contentious dispute settlement body in the Constitutional Amendment Bill and also decided on a partial rollout of GST, giving states the flexibility to join or exit the framework.
The key BJP-ruled states, however, continue to have some issues.
“There is broad consensus on the design of GST...Certain issues require more discussion,” Sushil Modi, Bihar’s Deputy Chief Minister and Chairman of the Empowered Committee of State Finance Ministers said.
A day earlier, differences over the issue of compensation for reduction in central sales tax rates had been ironed out.
The GST proposes to replace the plethora of indirect taxes with one single levy, a system that will help all stakeholder governments, business and consumers by preventing leakage, cascading of taxes and lowering the incidence of tax.
On the second day of the meeting, the panel of state finance ministers approved the report of a sub-committee set up by Finance Minister P Chidambaram on GST design, and decided to set up panels to look into three aspects of the tax regime: revenue-neutral rate and place of supply rules, exempted list of items, threshold for the tax and issues regarding dual control for small traders, and integrated GST that would be levied on inter-state sales and imposition of value-added tax on imports.
The panel also decided to bring petroleum products within the ambit of GST while keeping alcohol out of the proposed regime.
On Monday, the panel had agreed on a new compensation formula for phasing out central sales tax.
“There is 90%-95% consensus on all key issues...the groups have been set up as everybody wants to know the mechanics of how the structure would actually work,” said a senior official who was present at the meeting.
However, some BJP-ruled states continue to have reservations.
“There is no consensus... Most states have concerns on all key issues,” said Raghavji, finance minister of Madhya Pradesh.
The Centre will now approach the Parliamentary Standing Committee on Finance for changes in the Constitutional Amendment Bill, including dropping the dispute settlement body and a new mechanism to describe consensus in the proposed GST council.
As per the agreed proposal, the Centre’s vote will carry one-third weightage while the strength required to pass a proposal would be three-fourth of the members in the council. States will also have the power to raise tax rates in times of calamity.
The Constitutional Amendment Bill, tabled in March 2011, will allow the Centre to tax goods at the retail level and states to tax services. At present, the Centre can tax goods at the factory gate and the latter cannot tax services.
The Bill has been opposed by some states as they see the dispute settlement body and GST Council as encroachment on their autonomy.


A day after resolving the contentious CST issue, state finance ministers formed three subcommittees to look into other matters like IT infrastructure for smooth rollout of the goods and service tax regime.
“The deadlock over GST issue is now over. It is historic as there was a general consensus for introduction of GST,” Sushil Kumar Modi, the chairman of empowered committee of finance ministers, told reporters.
Though there was broad consensus over many features of the GST Bill, the empowered committee decided to set up three subcommittees to resolve issues, which could not be agreed upon by the finance ministers of different states, he said at the conclusion of the two-day meeting of state finance ministers.
While one sub-committee will deal with integrated GST (IGST), another subcommittee to address issues relating to revenue neutral rates (RNR) and Place of Supply Rules (PSR). The second subcommittee will deliberate mostly on service tax rules, said Modi, who is also the finance minister of Bihar.
As state finance ministers sought complete withdrawal or reduction of dual control system to protect interest of small and medium traders, the empowered committee also decided to put the issue for verification of a sub-committee.
“The three sub-committees will give their reports within three months,” Modi said adding the sub-committee on dual control will have to deliberate on the issues relating to exempted items and threshold for imposition of GST. The empowered committee also resolved to suggest to the finance ministry to incorporate provision of allowing the states to opt out of the GST fold if they desired. “In the present GST Constitution Amendment Bill there is no such provision. We cannot force states to accept GST,” Modi said.
Modi said the states demanded the centre should not hold rights to impose tax on declared goods like coal and LPG.

CST issue resolved

The Centre and states have resolved the contentious issue of CST compensation with the states agreeing for a lower payment of Rs 34,000 crore for phasing out the Central Sales Tax, a precondition for rollout of the Goods and Services Tax (GST).
“The amount of compensation for three years— 2010-11, 2011-12 and 2012-13—was about Rs 34,000 crore. The Centre has agreed to pay this compensation amount to states,” Bihar deputy CM Sushil Kumar Modi.
According to the resolution at the meeting on CST issue, the Centre would bear 100% of the loss accrued to states in 2010-11 fiscal on account of lowering of CST. However, for 2011-12 and 2012-13 fiscal, the Centre would give 75% and 50% of the losses to the states. CST, a tax imposed on the interstate movement of goods, was reduced from 4% to 3% in 2007-08 and further to 2% in 2008-09 after the introduction of value-added tax (VAT). The centre had then promised the states that it would bear losses due to reduction of CST. “However, the promises were not kept,” Modi said, adding the Empowered Committee accepted a central proposal to reduce the rate of compensation for early payment. The committee set up by finance minister P Chidambaram to resolve the CST issue had suggested that the payment of Rs 34,000 crore be made to the states towards losses on account of phasing out of CST.
The CST was to be phased out totally after the introduction of GST, which was originally scheduled to be launched from April 2010. Chidambaram recently said that even as GST Bill is unlikely to be passed by April 2013, he hopes to introduce it in the Monsoon session.
The GST rollout has missed several deadlines on account of differences over contentious issue of CST compensation and design of the GST structure between the states and the Centre. Introduced in the Lok Sabha in March 2011, GST Constitution Amendment Bill is with the standing committee on finance. Modi said that the states desire that the GST should be rolled out in next fiscal, failing which they would revert to the CST levy of 4%.
Finance ministers of 13 states—Gujarat, Assam, Jammu and Kashmir, Chhattishgarh, Karnataka, Madhya Pradesh, West Bengal, Punjab, Bihar, Tamil Nadu, Odisha, Delhi and Haryana attended the meeting while other states were represented by senior finance department officers. The Empowered Committee would deliberate on the GST issue on Tuesday, Modi said.
Chidambaram had earlier said he would outline amendments to the Constitution on GST in his Budget speech if there was consensus among states on the issue.

No consensus on GST yet

Members of Parliament from opposition parties demanded changes in the decision-making process of the Goods and Services Tax (GST) Council, the supreme body that will govern the proposed indirect tax structure and which will be empowered to decide in case of a dispute between states and Centre.
In the third meeting of the consultative committee on finance, MPs told finance minister P Chidambaram that to make GST acceptable to states, the government must make the decision-making powers of the GST Council more “practicable by providing decisions with two-third majority of the states rather than on consensus basis”.
Spelling out reasons that were holding back GST, members said, “The issue of loss to the states be
settled to the satisfaction of all states before we march forward.”
Chidambaram, however, impressed upon the members the need to have GST implemented without delay. He said GST was a more effective and efficient substitute for indirect taxes. The FM hoped that the GST Bill would be passed before April 1, 2013.
He admitted that there were still pending issues and that those would be resolved. The FM said the objective was to put in place an effective and efficient tax system which was friendly and fair to the taxpayers. A presentation was earlier made on the GST network system by officials of Central Board of Excise and Customs.
The common and shared infrastructure being rolled out for GST would be leveraged for providing benefits to both Centre and states, even prior to rollout of GST.