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Business News/ Politics / Policy/  Parliamentary panel report a big boost for GST
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Parliamentary panel report a big boost for GST

Suggested changes largely in line with consensus between Centre, states

A file photo of BJP leader Yashwant Sinha. Photo: HT (HT)Premium
A file photo of BJP leader Yashwant Sinha. Photo: HT
(HT)

New Delhi: India’s efforts to create a unified market by implementing a simple goods and services tax (GST) received a boost on Wednesday after the parliamentary standing committee on finance submitted its report on the constitution amendment Bill, suggesting changes largely in line with the consensus reached between the central and state governments on the design of the tax.

The passage of the 115th constitution amendment Bill is crucial for implementing GST, now expected to be rolled out only by April 2015.

The standing committee, headed by Bharatiya Janata Party (BJP) leader Yashwant Sinha, has recommended doing away with the proposed dispute resolution authority; allowing states to levy tax within a narrow band; and giving states the flexibility to time their entry into GST as was done during the implementation of the value added tax.

The states and the centre had reached an agreement on these issues in Bhubaneshwar in January.

The committee has recommended that no products be constitutionally excluded from GST. The constitution amendment Bill had put certain goods such as crude petroleum, diesel, petrol, aviation turbine fuel, natural gas and alcohol for human consumption outside the ambit of GST. Stating that the exclusions will make the GST regime very rigid, the committee has said that their inclusion or exclusion can be decided by the GST council.

Satya Poddar, a partner in the tax practice of audit and consulting firm EY (formerly Ernst and Young), welcomed the move to not exclude any product from GST.

The committee has also recommended that decisions related to final rates, exemptions, exclusions, thresholds and administrative arrangements in GST should be made through rules and laws and not through changes in the Constitution.

GST is India’s singular tax reform which seeks to remove barriers among states and create a unified market. However, differences among states themselves and between the centre and the states have ensured that the final GST design agreed upon will be far from perfect.

The government will now consider the recommendations of the standing committee and incorporate them in the Bill. Finance minister P. Chidambaram had said last week that the Bill is being vetted by the law ministry.

The constitution amendment Bill has to be passed with a two-thirds majority in parliament and ratified by a majority of the state assemblies. Simultaneously, the centre and the states will also work on a model tax legislation that will have to be passed by state assemblies for rollout of GST. Prime Minister Manmohan Singh has acknowledged that GST will be implemented only by the next government.

The committee also favours that entry tax, a levy imposed by states on movement of goods from one state to another, should be subsumed in GST. However, the report also says that since states have concerns they should be allowed to collect entry tax for distribution to local bodies instead of leaving it to be collected by different local bodies.

Entry tax is levied on goods produced in one state when they enter another state. It can be either levied by the state or by local bodies.

EY’s Poddar said it would be better if states just increased “the value added tax rate on all goods like Gujarat (has done)... As it is, courts are debating the constitutional validity of entry taxes that are levied by states".

According to him, entry taxes contribute around 8,000-10,000 crore to the revenue of states.

The committee has also recommended the creation of a GST monitoring or evaluation cell under the aegis of the proposed GST Council to closely monitor the impact of the tax.

The standing committee has said that there should be a “well-defined" automatic compensation mechanism to ensure that states’ concerns over revenue loss are adequately addressed.

The delay in the payment of central sales tax compensation by the centre has been a bone of contention between the centre and the states. CST was reduced to 2% from 4% as part of its gradual phase-out, but the tardy compensation has led to revenue loss for the states.

States have been insisting that the centre create a formal mechanism for payment of compensation in a post-GST regime. They fear that a move to GST will lead to revenue losses at least in the initial few years.

Following concerns expressed by Gujarat, Madhya Pradesh and a few other states, the committee proposed that a study be commissioned to evaluate the impact of the GST regime on the revenues of states.

The committee has recommended that a GST Compensation Fund should be created under the administrative control of the GST Council, where state governments will have two-thirds voting powers and the central government one-third.

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Published: 07 Aug 2013, 01:47 PM IST
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