New Delhi: The proposal for a single goods and services tax (GST) received a fresh lease of life after the Bharatiya Janata Party (BJP) reversed its earlier opposition to the nomination of Bihar deputy chief minister Sushil Modi as the chairman of the empowered committee of state finance ministers.
With the parliamentary standing committee on finance, which is finalizing the Bill, being headed by BJP leader Yashwant Sinha, the principal opposition party finds itself in a key position to influence passage of the GST legislation.
Modi, immediately after taking over on Monday, said he would try to evolve a consensus among states for the ambitious indirect tax reform. His leadership will be particularly crucial in bringing around some of the dissenting ministers, particularly those belonging to the BJP.
The Times of India and The Economic Times first reported his appointment.
Earlier, the BJP had dragged its feet on endorsing Modi’s nomination to the chairmanship of the committee. The party did not make its opposition official, but dragged its feet and delayed signing off on Modi’s nomination.
Despite the new political earnestness on pushing ahead with the single biggest tax reform that will economically unify the country, the United Progressive Alliance is unlikely to be able to meet its deadline of introducing GST in the next fiscal year.
“It’s not a BJP vs (ruling) Congress issue. GST is in BJP’s manifesto. There is no ideological opposition to it. Most of the issues are state-centric,” said Modi, who initially refused to take over as the chairman of the committee to succeed Asim Dasgupta, the former finance minister of West Bengal.
The constitutional amendment Bill was tabled before Parliament in March and was later referred to the standing committee.
In their meeting on Monday, the first after the recent assembly elections, state finance ministers unanimously elected Modi as the chairman of the empowered committee, with his name being proposed by Delhi chief minister Sheila Dikshit and seconded by Orissa finance minister Prafulla Chandra Ghadei.
Though the only agenda for the meeting was the selection of a new chairman, the states also raised the issue of compensation for the year 2010-11 to meet losses on account of the phasing out of the Central sales tax.
“The Centre is yet to arrive at a formula for deciding the amount due for states as compensation for 2010-11. However, we have released around Rs 2,000 crore as ad hoc compensation,” said a finance ministry official who did not want to be identified.
Introduction of GST is expected to lower the cost of doing businesses, which will eventually translate into lower prices for customers.
The support of the BJP is crucial for the Bill as it requires to be passed with two-thirds majority in Parliament and also needs the support of at least half of the Indian states.
“We are all very positive that under the leadership of Modi, all the issues which have been pending between the Centre and the states, all the issues related to VAT (value-added tax) and GST will be amicably solved,” said Gujarat finance minister Saurabh Patel.
Modi declined to comment on whether the roll-out of GST will meet the 1 April deadline. However, he said that the Centre will need to be flexible if it wants to arrive at a consensus. “The concerns of the states should be looked into,” he said.
Pratik Jain, executive director at audit and consulting firm KPMG, said: “It is a positive development and is expected to help build up a consensus among states. He has been supporting the GST process from the beginning. However, to what extent he will be able to build up a consensus remains to be seen. Roll-out of GST from April seems difficult.”
Modi said the empowered committee will take up the concerns of the states regarding provisions in the constitutional amendment Bill with the standing committee.
The states are demanding they should be given flexibility to levy cess during exigencies such as floods and droughts so that they do not have to depend on the Centre for funds. Some of the coal-producing states are also demanding that coal be kept outside the purview of GST. The states are also opposing the dispute settlement authority proposed in the draft.
The empowered committee is likely to meet after 15 August to finalize the next steps on GST reform.
“The role of the empowered committee is now limited as the Bill is now within the ambit of the standing committee,” Modi said.