States, Centre yet to agree on GST structure

While the states have proposed two rates for goods under GST on the grounds that necessary items should attract lower rate, the Centre has suggested one rate, saying a two-rate structure would pose problems.

Opposing the Centre's proposal, Madhya Pradesh finance minister Raghavji at a meeting of the empowered committee of state finance ministers on Friday said Centre's suggestion will burden the poor. "Almost half of the population do not get the required basic necessities of life. In this context, the suggestion of the Centre for a single GST rate for both the daily necessities and the luxuries defies logic," he said.

Arguing that the empowered committee should stick to the rate structure proposed in the discussion paper, Raghavji said, "changes in the taxation policy which are likely to adversely affect the living conditions of the poor cannot be justified in the name of convenience of administration."

Not agreeing with the suggestion of the empowered committee, the Centre had argued that a two-rate structure for goods is likely to result in inversions in the duty structure with raw materials and intermediates attracting higher rate and finished goods lower rates. This is will scuttle the very objective of the new indirect tax regime as the intention is to apply the lower rate to only necessities. Also, currently services are chargeable at a single rate. Adopting a dual rate for goods would generate a similar demand for services too.

Both the Centre and the states have, however, agreed on the single rate for services.
The Centre and states also do not agree on the threshold, the level below which tax would not be levied. The states have called for Rs 10 lakh threshold for state GST and Rs 1.5 crore for goods under the Central GST. They also want high threshold for services under Central GST.

But the Centre is for a uniform threshold for both goods and services for state GST and as well as Central GST.

Commenting on the issue, Bihar deputy chief minister and finance minister Sushil Modi said, "there is almost consensus among the states that those having turnover below Rs 10 lakh should be kept out of state GST and those below Rs 1.5 crore under the Central GST. But the Centre is not agreeing to this."

Empowered committee chairman Asim Dasgupta, however, said the meeting discussed the nitty-gritty of the GST structure. "We need another interaction or so to complete it," he said.

Dasgupta, however, exuded confidence that the GST would be implemented from next fiscal. "After today's meeting, I am quite confident (in meeting the deadline)," he said.

The earlier deadline for GST implementation was from April 1, this year. GST would replace excise duty, service tax at the Central level and VAT at the states end, besides local levies, surcharges, cesses.

To expedite the process, the Centre had conveyed his willingness to provide more compensation to the states for meeting their revenue loss due to implementation of GST, than Rs 50,000 crore, suggested by the 13th Finance Commission.

Finance minister Pranab Mukherjee had said in the budget that "it will be my earnest endeavour to introduce GST along with the DTC (Direct Taxes Code) in April, 2011."

However, finance minister of a state said states would need Rs 1 lakh crore compensation and expressed its doubts whether GST would be implemented even from new deadline.