New Delhi: Negotiations among states, and between the Centre and the states on the proposed goods and service tax (GST) were stuck after a meeting of state finance ministers in New Delhi on Monday failed to throw up a solution on implementing the new tax regime.
Finance ministers of the states ruled by the Bharatiya Janata Party (BJP) did not attend Monday’s meeting. BJP-administered states had earlier opposed the Centre’s suggestions on constitutional amendments to usher in GST on the ground it would strip the states of their fiscal autonomy. Asim Dasgupta, West Bengal’s finance minister and chairman of the state finance ministers’ group, said attendance was thin as many ministers were busy with state assembly sessions. “The converging process has improved a lot,” Dasgupta, said, explaining that differences had narrowed between BJP-administered states and others on GST’s constitutional architecture.
According to three Union government officials who attended Monday’s meeting and who spoke on the condition of anonymity, the gulf between the states and the centre on the constitutional architecture remains as wide as it was a few months ago.
GST is India’s most ambitious indirect tax reform, seeking to create a common national market by bringing down fiscal barriers between states. The constitution’s current provision on the demarcation of the taxation powers of the Centre and states has to be amended to implement GST, which needs a wide-ranging consensus among political parties. The Centre had asked states to come out with an alternative to their proposal after many states feared the loss of fiscal autonomy.
According to one of the three officials mentioned, the states have compiled a list of differing demands and presented it as an alternative instead of coming up with common alternative.
Dasgupta declined to discuss the states’ alternative and said he would meet finance minister Pranab Mukherjee to talk about states’ views on constitutional amendments after the end of the current Parliament session.
“The state finance ministers’ position vis-a-vis elimination of GST council and the dispute-settlement body in the constitutional amendment Bill remains unchanged and the absence of the issue in the agenda for the meeting indicates their unwillingness to find an alternative solution,” Prashant Deshpande, leader of Deloitte’s indirect tax practice in India, said in an email statement. “This is bound to have an impact on the feasibility to introduce GST at an early date.” According to Dasgupta, Monday’s meeting discussed, among other things, the strong growth in tax revenue in states in the current fiscal.
Value-added tax (VAT) revenue rose 30% in the April-October period from the year earlier, he said, adding that he did not have the tax revenue figure for the period.
The growth in VAT was partly on account of an increase in tax rates by many states in the current fiscal. The year’s revenues will influence GST rates and indicate the cushion the Centre will have to provide the states for revenue when they switch to GST.
At the meeting, the states estimated they would lose revenue of Rs 20,000 crore in the current fiscal on account of the two percentage point cut in Central sales tax to 2% as a precursor to rolling out GST.
The states want 60% of the estimated revenue loss to be offset by the Centre quickly, while the residual amount could be settled after talks, Dasgupta said.