New Delhi: Prospects for the early implementation of the goods and services tax (GST) brightened with Sushil Kumar Modi, who leads a panel of state finance ministers, saying only a few issues remained unresolved between states and the Centre.
State finance ministers will meet finance minister P. Chidambaram on 8 November to finalize a formula for compensation to state governments.
Modi, chairman of the empowered committee of state finance ministers, met Chidambaram on Thursday to discuss the resolution of differences over implementing the tax regime that will make India a unified market.
“Both the Centre and states are coming towards an agreement on the GST issue and there are only a few issues that remain to be resolved,” Modi told reporters. “In coming days, we will resolve those issues also.”
Modi said Chidambaram was flexible and positive on areas such as compensation, tax rates and fiscal autonomy.
“He seemed in agreement with most issues raised by the states. I can say we are moving in the right direction in a positive manner,” he said, adding there was convergence rather than confrontation on many issues. “In (the) next two or three meetings, we will be able to sort out all the differences with the Central government.”
Officials who attended the Thursday meeting included revenue secretary Sumit Mitra and chairman of the Unique Identification Authority of India, Nandan Nilekani.
Modi said progress on building a tax network was also reviewed, adding the network was advancing at a rapid pace.
While there could be some breakthroughs, the issues remaining are complex, said Vivek Mishra, leader, indirect tax, at PricewaterhouseCoopers.
“Nobody is asking the question as to how states are going to tax services. This is a fundamental issue for which nobody has an answer right now,” he said.
Mishra also said it will be difficult to pass the GST Bill in the currently vitiated political atmosphere.
“In last one year, Parliament has not been able move forward. In this situation, I do not see all parties coming together and passing a constitutional amendment with two-thirds majority,” he said.
GST is India’s most ambitious tax reform and aims to unify the country into one common market. The tax system has been delayed because of a lack of consensus between the Centre and the states on some key proposals, such as the formation of a dispute-resolution panel and the need for a floor rate with a band. The non-payment of central sales tax compensation by the Centre to the states is also a sticking point. Modi said state governments should have autonomy on the issue of raising state-level GST rates. “There should be a floor rate with a narrow band. There is consensus on the issue,” he added.
He said Chidambaram consented to devise a formula to compensate states when GST is implemented. Such issues will be discussed in detail when the empowered committee of state finance ministers meets Chidambaram on 8 November, he said.
State governments are of the view that they should be allowed to raise taxes at times of natural calamities, Modi said. “Almost all states are of the view that there is no need for a dispute-settlement authority as it will infringe up on the autonomy of the states. There is near unanimity on that issue,” he added.
Modi, however, would not comment on the deadline for implementing GST. “Until the report of the standing committee on finance is finalized, there cannot be further movement on the matter. I am not competent enough to speak on the issue. Chidambaram and the central government can provide a certain answer to that question,” he said.
Chidambaram said at a conference of economic editors in New Delhi that he is hopeful of being able to resolve all the issues around the levy system at the 8 November meeting. Once there is agreement on the broad points, the passage of the goods and service tax law should be “possible at the earliest”, Chidambaram said.