JOIN USThere were some minor agreements at the recent meeting of state finance ministers over the goods and services tax (GST) but major areas of differences between the Centre and the states over the design and implementation of the proposed taxation system still remain.
It was agreed that GST would cover all traders and service-providers with an annual turnover above Rs 10 lakh. The states may also be given administrative control of tax from trades and businesses with a turnover of less than Rs 1.5 crore.
The latter decision will ensure that businesses will not have to answer to two authorities. But states continue to have apprehensions about some major aspects of the proposed system. These doubts and objections have continued for many years.
Some important issues of discord concern the scope of GST and the compensation to be paid by the Centre to states for loss of revenue caused by its implementation. The states fear that their autonomy in the sphere of taxation may be abridged by the new tax which will make the country a single national market.
States ruled by opposition parties had raised such objections during the UPA government’s tenure but now Congress-ruled governments have also joined them. Gujarat and Madhya Pradesh still have reservations. The Centre should be ready to compensate the states for any revenue loss. It is a different matter that the implementation of GST, which is a simple, efficient and modern system of taxation, will on its own give a boost to revenues.
The states also want to keep some important items like petroleum products and liquor out of the scope of GST. These items account for a major part of their revenues, with petroleum products contributing over 26 per cent. But exemptions for major items are not good for the working of any taxation system. The attempt should be to keep exemptions to the minimum and Centre should convince the states on the matter.
At present the Centre and the states levy a number of taxes at different rates on goods and services. The GST seeks to replace these with a system where there is only one central tax and one state tax.
This will do away with the complexity of the present system, avoid the cascading of taxes along the line and make movement of goods across states easier. Both the Centre and the states should accommodate each other’s needs and sensitivities and reach an early agreement on GST.