New Delhi: K. Anbazhagan, finance minister in Tamil Nadu’s Dravida Munnetra Kazhagam (DMK) government on Thursday joined the list of state finance ministers who are uncomfortable with 1 April 2010 deadline to implement goods and services tax (GST).
DMK is a part of the ruling United Progressive Alliance (UPA) government. The Bharatiya Janata Party-ruled states have already raised their objections on the implementation of uniform taxation in the scheduled time and sought a “serious relook” at the scheme, labelling it “anti-poor”.
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In the written copy of his speech at the state finance ministers’ pre-budget meeting with Union finance minister Pranab Mukherjee, Anbazhagan said: “I feel that the targeted implementation date of 1.4.2010 is premature and hurried, especially since even VAT (value added tax), the precursor to GST has not yet stabilized. Moreover, it is necessary that fair and revenue neutral tax rates need to be worked out for states.”
Pointing out that Tamil Nadu is yet to receive the full payment of the truncated VAT related compensation promised by the Union government, he said: “The pending compensation claims, both on account of implementation of VAT and reduction of Central sales tax rates, amount to Rs4,055.25 crore. Such withholding of agreed compensation to states, I dare say, certainly will not inspire confidence among the states regarding a fair GST regime.”
GST is an attempt to economically integrate Indian states. Currently, states have the power to independently levy indirect taxes on some goods. As a result, some of the decisions made by firms have more to do with tax avoidance than operating efficiency, say analysts. Under GST, there will be uniform tax rates on almost all important goods and services across states.
Assam chief minister Tarun Gogoi told reporters that compensation from the Centre to states to offset loss of revenue following a switch over to GST has not been finalized yet. “They (Centre) said they will give compensation for five years. We want permanent compensation.” Madhya Pradesh’s finance minister Raghavji (he uses only one name) told Mint that temporary compensation for loss of revenue was bothersome.
The states also wanted to be freed of fiscal discipline for about two years to increase public expenditure to combat the economic slowdown. Currently, the fiscal deficit of states is restricted to 3.5% of state domestic product (SDP). According to Sushil Modi, the finance minister of Bihar, states want the upper end of their fiscal deficit to be enhanced to 4.5-5% of their SDP and also be freed of any restrictions on deficit for about two years. A state finance minister, who attended Thursday’s meeting, said West Bengal, Kerala and Jammu and Kashmir (another UPA ally-ruled state) had expressed their temporary opposition to the Fiscal Responsibility and Budget Management Act.