CONSTITUTIONAL AMENDMENTS-THE PENULTIMATE REQUIREMENT

It appears that in the near future there will be no end in sight to the differences between the Centre and the States over the model required for the introduction of the Goods and Services Tax. The progress in the proposed Goods and Services tax regime which once took a very good pace seems to be slowing down just because of the absence of the one word i.e. Consensus. Consensus is the only word on which the future of the Goods and Services depends but a lot of barriers are still there in front of the Finance Ministry to achieve that with the Empowered Committee of the State Finance Ministers.

The upcoming meeting of the Empowered Committee of State Finance Ministers which is scheduled to take place on Dec6, 2010 has already dropped the most quarrelsome issue of Constitutional Amendment. Instead, the structure of the proposed Goods and Services Tax will be discussed. Moreover, the issue of compensation to States due to reduction in Central Sales Tax will also be taken up by the Empowered Committee. The main reason for dropping this quarrelsome issue is to generate some pace towards the roll out of the Goods and Services Tax as the issue of a Constitutional Amendment had prevented the further progress on the GST several times earlier. So by just dropping the issue of Constitutional Amendment from the agenda of the upcoming meeting would not solve the purpose anyways as it would again come up as a major area of difference between the Centre and States.

The Finance Ministry has made its part clear that no step would be taken further without Constitutional Amendments. On the other hand, the BJP-ruled States along with some of the allies of the UPA are favouring the phased approach for amending the Constitution. In the phased approach, the main focus is on allowing the Centre and the States to share their tax base and for this only initial amendments will be made to the Constitution. However, the two main pillars of the Goods and the Services Tax i.e. GST Council and the Dispute Settlement Authority will be kept outside the Constitution to start with and if required, both could be given a Green signal with Constitutional Amendment at a later stage.  Currently, the Centre can impose tax on goods at the factory gate and services while states can impose tax at the retail level on goods. Constitutional Amendment Bill is required to give powers to the States to levy Service Tax and the Centre to impose tax beyond production stage.

On the issue of Dispute Settlement Body, the States are demanding that they should be individually allowed to make laws on the creation of such a body, instead of the Centre setting it up through an amendment to the Constitution. The States are basically looking to protect their fiscal autonomy which they think will get affected in the new tax regime.

Hence after looking to all these issues which are still unsolved, it seems that this upcoming meeting cannot provide the fruitful results which our Finance Ministry is looking for and there will be no surprise if we hear about the next date of the meeting of the Empowered Committee of State Finance Ministers to break the remaining unresolved conflict on the Goods and Services tax.