States split on GST draft

Differences emerge on fiscal autonomy to levy taxes under the new provision

The Empowered Committee of State Finance Ministers (ECSFM) on GST at its three-hour long meeting discussed at length various suggestions to be proposed to the Finance Ministry on preparing a revised draft of the CAB but could not concretize the proposals, official sources said.

“There appears to lack of consensus on issues relating to fiscal autonomy of states to levy taxes,” sources said.  It is learnt that BJP-ruled states along with some others continue to oppose the draft of the CAB. The DMK-ruled Tamil Nadu and BSP- administered Uttar Pradesh also opposed the draft.

Few months back the Center had floated a draft of the CAB for rolling out the GST, which seeks to replace the Central Excise and Service Tax at the Central level and Value Added Tax (VAT) and local levies at the State level. At its previous meeting on August 18 the ECSFM headed by the West Bengal Finance Minister Asim Dasgupta discussed at length various provisions of the draft CAB. But it could not firm up its views on the CAB as some states wanted a month’s time to study the revised draft.

The first draft had proposed setting up of a GST Council to take decisions on GST with the consent of the Union Finance Minister and a two-third majority of states. The draft was understood to have proposed vesting veto power with the Union Finance Minister on state taxation issues.

Many states objected the first draft on the ground that such a provision would affect the fiscal autonomy of states to levy taxes. Subsequently, the Finance Ministry taking the concerns of states into account floated a revised draft, which proposed that the GST Council could take a decision only when there is a consensus.

The ECSFM while discussing the revised draft sought some more time for giving its comment as some states wanted more time to study the proposal. Finance Minister Pranab Mukherjee has proposed that the Center could come out with a third revised draft to sort out states’ concerns. The EGSMS will meet once again next month to finalize its comments on the revised draft on CAB, sources said. 

The Center is striving hard to finalize the draft CAB on GST as under the present system, the Centre cannot impose tax beyond manufacturing and states cannot impose service tax.  Under the new GST both Centre and states can levy taxes on the common base of goods and services.

To enable this it is necessary to amend the constitution. The CAB is needed to be approved by two thirds majority in both houses of Parliament and subsequently ratified by two thirds of state assemblies. The GST was earlier proposed to be implemented from April One this year. But it missed the deadline as both centre and states failed to evolve consensus of the GST.

Though it is now proposed to implement the GST from April One 2011, it is likely to miss this deadline too as it will be difficult to complete the necessary legislative formalities by March 31, 2011.