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India is inching towards the Goods and Services Tax regime, Mr Sushil Kumar Modi, Chairman, Empowered Committee of State Finance Ministers, said in his inaugural address at a conference organised by the Indian Merchants’ Chamber here.
Mr Modi, who is also the Deputy Chief Minister of Bihar, said that States are not fundamentally opposed to GST. However, there are a few concerns of the States that the Centre must address. “Hence, there cannot be a concrete deadline for introduction of GST.”
States fear that their fiscal autonomy might be compromised. This is because there is “trust deficit” between Centre and States. For instance, when the Central Sales Tax (CST) was cut to 2 per cent from 4 per cent on introduction of VAT (Value Added Tax), the States demanded Rs 19,000 crore for loss of revenue. The Centre, however, gave only Rs. 6,000 crore.
States have demanded that they be compensated for five years for any loss in revenue due to introduction of GST. They also demand that the compensation clause be included in the Constitution amended Bill. “This is the biggest challenge,” Mr Modi said.
Mr Modi said that even the Centre will lose some of its fiscal autonomy. There will be a GST council which will decide the central GST as well as the state GST. Since the council will have majority members from the states and only 2 from the Centre, views will be (more) representative of states.
Introduction of GST will make imports cheaper and make exports more competitive. It will add about 1 to 1.5 per cent to the gross domestic product (GDP). As of now, there is no national market in India. GST will make inter-state trade more seamless.
CONSTITUTIONAL AMENDMENT NEEDED
Currently, the Centre is not empowered to collect taxes on sale of goods. Similarly, States are not allowed to levy taxes on supply of services and imports. Hence a constitutional amendment is needed to empower the Centre and the States to levy taxes on both goods and services.
To protect the federal structure, the 115th Amendment Bill -- 2011 provides that both States and Centre will have the powers to levy taxes based on revenue considerations. The tax rates and other technicalities like avoiding dual taxation will be worked out in due course.
GST NETWORK – THE KEY
Mr Modi said, "Businessmen and traders are sceptical that the proposed GST, where both the Centre and States have the power to levy taxes, will lead to dual control."
To put fears like these to rest, a robust IT infrastructure is required so that the tax paid is reflected in the systems monitored by the centre and the state.
The implementation of the GST network, led by Nandan Nilekani, will be complete by August this year.
>satyanarayan.iyer@thehindu.co.in
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