New Delhi: An empowered committee of state finance ministers on Wednesday welcomed the Centre’s decision to reopen dialogue on the deadlock over central sales tax compensation, which had threatened to derail the implementation of goods and services tax (GST).
The panel expressed hope that the legislation for the ambitious tax reform will be in place before 1 April 2013.
Speedy resolution: Chairman of the empowered committee of state finance ministers Sushil Kumar Modi says the Constitution Amendment Bill may be tabled in the winter session of Parliament. By AP Dube/HT
The roll-out of the GST from the next fiscal still looks unlikely as the Constitution Amendment Bill, which is being examined by a parliamentary standing committee on finance, has to be passed by both Houses of Parliament and by 50% of the state assemblies, analysts said.
“The Centre has agreed to set up a committee comprising finance ministry officials and representatives from states to discuss the issue of central sales tax compensation,” Sushil Modi, chairman of the panel and deputy chief minister of Bihar, said at a media briefing. “The committee will meet in the next few days. The finance minister will also meet all state finance ministers in the first week of May.”
Mint’s Remya Nair says that with the centre setting up a panel to discuss central sales tax compensations, there are renewed expectations the GST bill could be tabled in the winter session of Parliament
The states had cut central sales tax to 2% from 4% as part of a gradual phase-out of the tax to facilitate the transition to GST, with the central government compensating the states for the revenue forgone. But given the delay in implementation, the central government had refused to make further payouts.
Modi said that with the Centre showing flexibility, it is possible that the Constitution Amendment Bill will be passed in the current fiscal.
“Things will move very fast in the coming days as the standing committee will start discussing the Bill after the budget session concludes on 24 May,” he said. “The standing committee should finalise the report in four-five months and the Bill could be tabled in the winter session.”
After the legislation is passed by Parliament and ratified by 50% of the states, the law will have to be framed and the GST council has to be set up, he said.
The indication of 1 April 2013 is positive for the industry considering that this is the first time that the committee is talking about a possible date, said Pratik Jain, partner at consultancy KPMG.
“Given that various issues, including some of the provisions of the Constitution Amendment Bill like the GST council and dispute resolution body, still remain unresolved, meeting the rollout date will be challenging,” Jain said.
GST is India’s most far-reaching tax reform and aims to integrate the country into a common market by dismantling fiscal barriers between states.
The committee has also given its final approval for setting up a special purpose vehicle to set up the technology infrastructure for implementing the goods and services tax network, or GSTN. Though the cabinet has cleared the proposal for GSTN, to be set up by a not-for-profit private company, states had reservations over private sector companies holding a majority 51% stake.
“Since it will be a non-government company, states had concern over strategic control,” Modi said. “We have decided to retain strategic control through special regulation and through composition of the board.”
The government will impose conditions in the articles of association so that certain decisions are taken only with three-fourth of majority, thus ensuring that it retains control.
The 51% share of the private sector is also spread among private companies with only one entity holding 21% stake and the remaining stake being equally divided among three entities. There will also be a exit clause. So, if the centre and states want, they can close the company.