12.7.12

GST mess


State governments have cautioned that they may resort to `anti-reform' taxes in case New Delhi does not fully compensate revenue losses accruing to them on account of central sales tax (CST).
Pending phase out of CST and introduction of single goods and services tax (GST), states have demanded compensation worth Rs 19,000 crore in 2010-11, and about Rs 20,000 crore for 2011-12, against estimated revenue losses.
In a three-page missive to the prime minister, chairman of empowered committee of state finance ministers Sushil Kumar Modi has demanded that Manmohan Singh should immediately convene a meeting of state finance ministers on CST compensation.
Modi's letter issues a veiled threat that pending full revenue compensation to states on CST, tax reforms, including GST rollout might face fresh roadblocks.
Modi, who is also deputy chief minister and finance minister of Bihar, dismissed the centre's `unilateral decision' against CST compensation to states without even hearing them out. This is “...likely to adversely affect the process of tax reforms in the country, including the introduction of GST in India,“ he has said.
To bridge revenue losses, the states may have to resort to “certain tax measures that may not be in the interest of tax reform,“ he said.
Modi's letter comes close on heels of three state chief ministers seeking the prime minister's intervention on compen sation against revenue losses due to CST. West Bengal chief minister Mamata Banerjee, Odisha's Naveen Patnaik and Tamil Nadu's Jayalalithaa have also written to Singh.
Modi has drawn attention to finance secretary R S Gujral's letter clearly stating that “there will be no CST compensation for 2011-12“. The empowered committee of state finance ministers has pointed out that CST compensation was not linked to base VAT rates increase to five per cent from four per cent.
Modi also pointed to the fact that several states like West Bengal, Andhra Pradesh, Tamil Nadu and Odisha did not increase the VAT rate to five per cent from four per cent in 2010-11.
State finance ministers have also pointed to the fact in Odisha, Jharkhand, West Bengal and Chhattisgarh, VAT was levied on ‘declared goods’ category at four per cent. Declared goods category brings in major chunk of VAT revenue for these state governments.
Apart from inadequate compensation against CST losses, Modi has also pointed to protracted delays in release of funds to states.
In this year's budget, no specific provision was made by Pranab Mukherjee, as finance minister, against revenue losses of states on account of CST.
Incidentally, most of them seem to be opposition-ruled states such as Gujarat and Madhya Pradesh led by BJP , Uttar Pradesh earlier ruled by Mayawati's BSP , and now, by Mulayam Singh Yadav's Samajwadi Party.

No comments: