The government cleared the first hurdle to roll out goods and services tax (GST) by agreeing to several demands raised by states, paving the way for the introduction of the Constitution Amendment Bill during the current session of Parliament to bring in the most ambitious tax reform from April 2016.
GST will create a unified market by ending multiple levies by the Centre and states and is expected to result in lower costs for businesses and more revenues for the government. States have been resisting the transition fearing loss of flexibility, but came on board on major issues after a meeting with Union finance minister Arun Jaitley on Monday , the second such consultation in a span of four days. “There is broad agreement on the issue,“ said a source who was present at the meeting. Sources said the Centre conceded some ground by suggesting that petroleum products could be kept out of GST in the initial years, but included later. A tax on petroleum products was a critical issue for the states as some of them mop up as much as half their taxes from these goods.Similarly , it agreed to allow the states to put an additional levy in lieu of entry tax.
Manufacturing states led by Gujarat too will be allowed to levy a “transitionary tax for one or two years“. Further, the Centre has assured states that their entire revenue loss will be taken care of for five years after GST rollout. It has indicated its willingness to incorporate the provision in the Constitutional Amendment Bill, although the details will be finalized after consulting the law department.
Although the Centre has softened its stance, the calculation is that the “flexibilities“ will reduce the overall compensation. In any case, FM Arun Jaitley recognizes that it is better to introduce the tax, even if it isn't perfect, instead of having to deal with a situation where there is no GST.
“The matter (GST) was discussed elaborately . The discussions are moving in a positive direction,“ said Jammu & Kashmir finance minister Abdul Rahim Rather, who is also the head of the empowered group of state FMs. Rather led the delegation of ministers which also included his counterparts from Punjab, Haryana, Gujarat, TN, Maharashtra and Karnataka.
GST will create a unified market by ending multiple levies by the Centre and states and is expected to result in lower costs for businesses and more revenues for the government. States have been resisting the transition fearing loss of flexibility, but came on board on major issues after a meeting with Union finance minister Arun Jaitley on Monday , the second such consultation in a span of four days. “There is broad agreement on the issue,“ said a source who was present at the meeting. Sources said the Centre conceded some ground by suggesting that petroleum products could be kept out of GST in the initial years, but included later. A tax on petroleum products was a critical issue for the states as some of them mop up as much as half their taxes from these goods.Similarly , it agreed to allow the states to put an additional levy in lieu of entry tax.
Manufacturing states led by Gujarat too will be allowed to levy a “transitionary tax for one or two years“. Further, the Centre has assured states that their entire revenue loss will be taken care of for five years after GST rollout. It has indicated its willingness to incorporate the provision in the Constitutional Amendment Bill, although the details will be finalized after consulting the law department.
Although the Centre has softened its stance, the calculation is that the “flexibilities“ will reduce the overall compensation. In any case, FM Arun Jaitley recognizes that it is better to introduce the tax, even if it isn't perfect, instead of having to deal with a situation where there is no GST.
“The matter (GST) was discussed elaborately . The discussions are moving in a positive direction,“ said Jammu & Kashmir finance minister Abdul Rahim Rather, who is also the head of the empowered group of state FMs. Rather led the delegation of ministers which also included his counterparts from Punjab, Haryana, Gujarat, TN, Maharashtra and Karnataka.
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