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.