The Centre and States are inching closer to an agreement over various contentious issues regarding the introduction of the Goods and Services Tax (GST). This emerged after a meeting between Finance Minister P. Chidambaram and Chairman of the States’ Empowered Committee Sushil Kumar Modi.
“The talk was very positive. The Centre seems to be flexible on converging on the States’ views,” Sushil Modi said after the over 90-minute-long meeting. Though there was an assurance from the Centre to look into the matter of compensation in lieu of Central Sales Tax (CST) phase-out, there is no concrete action plan as yet, he added.
One of the key points where consensus seems to be emerging, is designing a narrow band of floor rate. It means, no State can go below the floor rate. Similarly, any State can go above the rate but only within the band, Modi added. Such a system will help in curbing unwanted competition on rates.
As regards special taxation powers, the proposal is to empower States to impose special taxes in case of a natural calamity. Modi also informed that the Centre was agreeable to compensation post-GST.
The thinking is to compensate for losses due to introduction of GST and the window for this could be provided by the 14th Finance Commission.
Dispute settlement
The States have expressed reservations over setting up of a dispute settlement authority, as proposed in the Constitution Amendment Bill. However, to resolve this disagreement, it has been suggested that the GST council set up its own mechanism, rather than create a new authority. Both the Centre and the States are “inching towards convergence” on this, Modi said.
The Empowered Committee Chairman, who is also Deputy Chief Minister and Finance Minister of Bihar, hoped that Thursday’s meeting would be an effort to build a parallel track along with the Standing Committee of Finance’s deliberations on the Constitution Amendment Bill for introduction of GST.
“Once the Standing Committee gives its report, the Centre will be in a position to accommodate States’ concerns with the help of its deliberations with the Empowered Committee,” Modi said. The Empowered Committee of State’s Finance Ministers is meeting next on November 8 when it will interact with Chidambaram as well.
The Centre intends to implement GST from April 1, 2013. Once introduced, it will subsume various Central (excluding Customs duty) and State levies.