State finance ministers reach consensus on GST

Debabrata Mohanty Posted: Jan 30, 2013 at 0048 hrs
Bhubaneswar Goods and Services Tax (GST), India’s most important economic reform, is set to become reality soon after state governments on Tuesday accepted most of the major changes proposed in its design suggested by a panel formed by Union finance minister P Chidambaram,

On the second day of a meeting of the Empowered Committee of state finance ministers here, the state governments accepted the changes in GST design and formed three sub-committees that would sort out revenue neutral tax rate, dual control of traders and integrated GST.

Chairman of the Empowered Committee (EC) of the state finance ministers and Bihar deputy chief minister, Sushil Kumar Modi said India can now look forward to GST, but refused to spell a timeframe for its roll out.

On Monday, a major hurdle was removed after state governments agreed to a compensation of Rs 34,000 crore for phasing out Central Sales Tax (CST).

Speaking to The Indian Express, Modi said it was for the Centre to decide when the Bill can be passed. “There was broad consensus over GST. The Central government has agreed to bring in the necessary changes in the Constitution Amendment Bill,” he said. “There were some areas of disagreement for which these three sub-committees have been set up.”

Modi said of the three sub-committees, the first will look into the issue of revenue-neutral tax rate and place of supply rules. The second would look into dual control of traders.

“The Empowered Committee is of the opinion that small traders and dealers should not be under dual control of state and Centre. A threshold limit has to be decided,” Modi said. 

The third panel would examine the issue of an integrated GST on inter-state trade and how imports are taxed under GST. 

Modi said the biggest hurdle in the path of the Constitutional Amendment Bill — Article 279(B) which had the clause of Dispute Settlement Authority — has been now cleared after Centre agreed to delete the clause.

In addition, states have been granted freedom to choose the timing of their entry into GST. The Centre also agreed that states will be allowed to levy a floor rate with a narrow band. States will also be given power to raise additional resources during a natural calamity or disaster, and goods like petroleum products will be brought under the ambit of GST.

KEY CONSENSUS AREAS

* States agree to a compensation of Rs 34,000 crore for phasing out Central Sales Tax

* The Empowered Committee has set up three sub-committees to iron out implementation issues

* The issues are: a revenue-neutral tax rate, dual control of traders by state and Centre, and integrated GST on inter-state trade

* Centre has agreed to delete the clause on Dispute Settlement Authority from the Amendment Bill

* States have been given freedom to choose timing of entry into GST regime