New Delhi: Implementation of India’s most ambitious tax reform, the goods and services tax (GST), could start on 1 April, 2010, even if all the states do not come on board, finance minister Pranab Mukherjee said on Tuesday.
Admitting that implementing GST won’t be easy, Mukherjee said the chairman of the empowered committee of state finance ministers Asim Dasgupta had assured him that the differences among states could be resolved. “I know there is a problem. As in VAT (value-added tax), some (states) did not join us. It may happen in this case,” Mukherjee told a gathering of industrialists, referring to the possibility of GST being rolled out in April 2010 without all states coming on board.
VAT, the precursor to GST, was introduced in January 2005 without a couple of large states such as Tamil Nadu and Uttar Pradesh signing on initially. Recently, the Tamil Nadu government has expressed reservations about the April 2010 deadline for GST, terming it premature.
GST aims to demolish tax barriers between states and fiscally unify India through a uniform tax rate and policy across states. The benefits are expected to be lower rates and a business environment where tax policies do not have a disproportionate influence on decision making.
Other than Tamil Nadu, Madhya Pradesh and Chhattisgarh are two states, both ruled by the Bharatiya Janata Party, which have reservations about a switch to GST.
Mukherjee, who has expressed the intention to periodically engage states on GST, said he would try to get all states on board before the April 2010 deadline. “I will use my persuasive power.”
On Tuesday, in a separate meeting with reporters, revenue secretary P.V. Bhide said the Union government would be comfortable with a GST rate which would give it the same amount of revenue that central excise and service tax give it today. In 2009-10 Budget estimates, excise and service tax together are estimated to yield the Union government about Rs1.71 trillion. Of that amount, a part devolves to states according to the tax sharing formula fixed by the 12th Finance Commission.
In the same meeting, finance secretary Ashok Chawla said the government hoped to raise anything between Rs3,000 crore and Rs3,500 crore this fiscal through the sale of some of its equity in National Hydroelectric Power Corp. Ltd and Oil India Ltd.
The proceeds from the sale are currently transferred to a National Investment Fund (NIF) and the government is allowed to use a part of the income generated from NIF for social sector spending. This mutes the impact of disinvestment when it comes to meeting the government’s current spending. Currently, the government is working on changing the rules of NIF to allow the entire money generated from disinvestment for social sector spending.
As the decision to create the NIF was taken by the cabinet committee on economic affairs of the erstwhile government, a decision to change the rules has to be taken by the same committee of the current government, Chawla said.