Home / Politics / Policy /  Govt likely to make GST priority; Jaitley to hold talks with states

New Delhi: The National Democratic Alliance (NDA) government is likely to make implementation of the goods and services tax (GST) a priority as it gets down to work, paving the way for the creation of a unified market of 1.2 billion people and easing the movement of cargo across state boundaries.

But the direct taxes code (DTC)—aimed at widening the tax net and plugging loopholes in the current income tax laws—may be put on the backburner for now, according to government officials who did not wish to be identified.

Finance minister Arun Jaitley held a meeting with officials in the revenue department and the direct tax and indirect tax arms of the government on Wednesday to get an overview of the main taxation issues.

The revenue department has been asked to prepare a presentation for the new finance minister, detailing the features and architecture of GST, the areas of disagreement with state governments and other issues like compensation for loss of revenue that have delayed the implementation of the indirect tax regime. The presentation will be made to the finance minister on Thursday.

The finance minister is also expected to soon meet state finance ministers to sort out differences and ensure an early rollout of GST, India’s most ambitious tax reform, aimed at making India a common, unified market and ensure seamless movement of goods and services, making it easier to do business

Adi Godrej, chairman of the Godrej Group, has estimated that implementation of GST would add up to two percentage points to India’s gross domestic product (GDP).

Initially planned to be launched on 1 April 2010, it has been delayed because of a lack of consensus between the centre and the states.

In its manifesto in the run-up to the general elections, the Bharatiya Janata Party (BJP) had promised to bring on board all state governments and address their concerns in adopting GST.

The BJP-led National Democratic Alliance government at the centre may have a better chance of forging a consensus, given that a majority of dissenting states, Gujarat, Madhya Pradesh and Punjab among them, are ruled by the BJP or its allies, which won power in the April-May Lok Sabha elections.

The government may be able to move the official amendments to the Constitution amendment Bill, key to the implementation of GST as early as in the monsoon session of Parliament, said an official.

Bringing on board all state governments on key issues, like the inclusion of petroleum and liquor under the ambit of GST, will be the key challenge, the official said.

The centre and the states have major policy differences over the final architecture of GST. Many states are opposed to the inclusion of petroleum products and liquor under GST to protect their revenue and fiscal autonomy.

They also do not want the entry tax—the tax that is levied on the entry of goods from another state— to be completely subsumed under GST. They want entry tax collected at the level of municipal bodies to be kept out of GST.

Another issue on which the Jaitley-led finance ministry will have to form a consensus will be on the revenue-neutral rate—the tax rate at which there is no loss to states when they move to a GST regime.

The issue of dual control of traders will also be a key discussion point. States are of the view that small traders should not be subject to dual control of both the centre and the states.

Analysts said the majority that the Narendra Modi-led government enjoys in the Lok Sabha could make it easier to push the Bill.

To be sure, the Constitution amendment Bill will need a two-third majority to pass in both houses of Parliament and has to be ratified by 50% of the state assemblies.

“The prospects for early implementation of GST have improved considerably. The main opposition was from BJP-ruled states. Hopefully, they will be on board now," said Bipin Sapra, tax partner at EY, the consulting firm formerly known as Ernst and Young. “Also, the Congress has said that it will support the GST. This means that opposition to GST will be limited and the government may be able to garner the numbers to get it passed in both houses of parliament. Given the number of steps involved, GST could come into force from late 2015 or early 2016."

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