GST: states may oppose inclusion of fuel, liquor
Shillong: A consensus on the proposed goods and services tax (GST) may remain elusive with many Indian states expected to oppose the inclusion of fuel and liquor under the tax system that seeks to eliminate all indirect taxes levied on goods and services.
The states are also angry that the central government has not released the compensation for phasing out the central sales tax (CST), despite making a budgetary allocation of Rs.9,000 crore in this year’s budget. The empowered committee of state finance ministers will meet on 18-19 November in Shillong with the aim of forging a consensus on the revised draft of the constitution amendment Bill, crucial for implementation of the goods and services tax, and on the non-payment of CST compensation, which is due to states for the losses incurred due to cutting of CST rate to 2% from 4% as part of its phaseout.
The central government, in its revised draft of the constitution amendment Bill, had proposed that fuel and liquor should be brought under the ambit of GST.
The last meeting of the empowered committee in October ended on a disastrous note for the rollout of GST with states opposing the inclusion of petroleum and liquor under GST despite agreeing earlier to not constitutionally debar these items. States are also opposing subsuming of entry taxes that are levied on goods entering from another state.
Though the centre can still table the constitution amendment Bill in the winter session of Parliament, opposition from states, one of the key stakeholders, does not bode well for the future of the Bill that requires to be passed by both houses of Parliament with two- third majority and ratified by 50% of the states.
GST is expected to unify the nation into one common market. But progress towards the tax has been slow as it requires the states to share their constitutional power of taxing goods with the Centre. Inclusion of petroleum and liquor in GST and the complete subsuming of entry tax to ensure a seamless GST and something that the industry has been demanding to ensure that there are no breaks in the supply chain.
A finance minister of an opposition-ruled state said states are unlikely to agree to include petroleum and liquor. “The centre’s viewpoint was that let’s not constitutionally debar petroleum and liquor. Later, the GST council, which will be set up with representation from centre and states, can decide how to tax these two items. But in the GST council, the central government has one-third voting power and states two-third. And in terms of sheer numbers, the Congress does rule in at least half of the states,” the minister said, requesting anonymity.
He added that states want the revenues in the GST regime to stabilize before agreeing to include petroleum under GST but ruled out inclusion of liquor.
Little effort has been made to forge a consensus among states, according to Satya Poddar, tax partner at EY, a consultancy earlier known as Ernst and Young.
“It is not as if all states oppose the inclusion of petroleum and liquor under GST. There are only a few vocal states who are opposed to it due to revenue concerns,” Poddar said. “Excluding petroleum and liquor constitutionally and not completely subsuming entry tax will be a big setback for GST.”
The central government should not have again sent the revised constitution amendment Bill to the states, he said. “The revised draft by the centre is largely on lines of the recommendations of the standing committee of finance and the agreement reached by the centre and the states in their meeting in Bhubaneswar in January,” Poddar said.
The standing committee on finance, under Bharatiya Janata Party leader Yashwant Sinha, had also favoured that inclusions be kept to a minimum for an integrated, comprehensive and seamless tax regime.