New Delhi: An earlier-than-expected roll-out of a goods and services tax (GST) is now a distinct possibility, after the Centre on Friday indicated that it would table a Bill in Parliament in the coming budget session that would initiate constitutional amendments to facilitate the transition.
“I solicit your support to go ahead with the introduction of the draft amendment Bill in the budget session of the Parliament,” said a written copy of finance minister Pranab Mukherjee’s speech on Friday to state finance ministers.
While state governments still had their reservations about the GST architecture, they did not oppose Mukherjee’s proposal for introducing a Bill.
If the Congress-led United Progressive Alliance moves ahead and tables the draft legislation, it would signal a big push for reforms—GST, which will economically unify the country, is considered among the single biggest tax reform initiatives—and provide fresh momentum to the ongoing dialogue with the states.
On Friday, state representatives met to crystallize a position on the Centre’s recent draft on the constitution Bill to transition to GST. Subsequently, the representatives met Mukherjee.
According to a finance ministry release, representatives of 16 states supported the draft, while 10 opposed it. The release did not name the opposing states.
Finance ministers of two Congress-ruled states, who attended the meeting with Mukherjee, said on condition of anonymity that a constitution amendment Bill was likely to be introduced in the budget session.
States ruled by the Bharatiya Janata Party (BJP) had last year opposed the transition to GST, as they feared a loss of autonomy. On Friday, the BJP’s position on the amendment Bill had not crystallized; they did not oppose the introduction of the Bill.
According to Sushil Modi, the BJP finance minister of Bihar’s coalition government, the party’s parliamentary board will discuss the Bill and take a final view.
“It is a very good move. Once the Bill is introduced in Parliament, it will speed up the process. It has very wide economic impact,” said D.K. Joshi, chief economist at Crisil Ltd.
GST is India’s most ambitious indirect tax reform, which seeks to stitch together a common market by removing fiscal barriers between states. Lower prices for consumers and enhanced competitiveness of Indian industry are expected to result.
The amendment Bill circulated by the Centre ahead of Friday’s meeting was the third such draft in the last eight months. Earlier drafts met with strong opposition from states and talks seemed deadlocked.
The third draft has introduced flexibility by allowing key institutional structures in the GST architecture, to be decided subsequently through negotiations.
“The provisions of the draft amendment Bill are now enabling provisions leaving it to the Centre and the states to take further decisions in this regard in due course of time,” Mukherjee said in the copy of his speech.
According to Asim Dasgupta, West Bengal’s finance minister and head of the states’ grouping for GST talks, the states have issues on some aspects such as the decision-making GST council and a dispute settlement body.
Mukherjee responded by pointing out different views on the subject could be accommodated in due course, Dasgupta told the media after the meeting.
According to Madhya Pradesh finance minister Raghavji (he uses one name), a Constitution amendment Bill introduced in Parliament would be referred to the parliamentary standing committee of finance for detailed study. Typically, at this stage, all stakeholders of legislation get a chance to put their points across.
In addition to the draft Bill, the states discussed compensation on account of revenue loss due to a cut in the Central sales tax (CST). According to Dasgupta, the states were told the finance ministry was willing to completely compensate them for revenue loss this fiscal.
CST is an indirect tax levied on movement of goods across state borders, and is to be phased out with GST. States had cut CST to the current 2% to ease the way for GST, leading to demands for compensation in its absence.