CONSTITUTIONAL AMENDMENTS ARE MUST FOR GST

The demands which are put forward by the Empowered Committee of the State Finance Ministers for changing the basic structure of the proposed Goods and Services Tax has been turned down by the Finance Ministry. Therefore, the two main pillars of the Goods and Services Tax i.e. GST Council and the Dispute Settlement Body would remain the Central part of the GST structure.

The Centre has framed a draft Constitution Amendment Bill for the roll out of the Goods and Services Tax. The first draft on the Constitution Amendment Bill was rejected by the Empowered Committee of the State Finance Ministers  because it proposed to give Veto Power to the Union Finance Minister on the State taxation issues. However, the revised draft from the Finance Ministry drops the main issue of giving Veto Power to the Union finance Minister and said that the Council could take a decision only when there is a Consensus. But the BJP-ruled States along with some of the allies of the UPA, have been opposing the revised draft of the Constitutional Amendment Bill on GST. They 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 .

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. However, the Finance Ministry makes it clear that the roll out of the Goods and Services Tax could not takes place without Constitutional Amendments.

Now lets have a look why this Amendment to the Constitution is required? 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.

It is well known fact that a lot of things is required to be done for the introduction of the Goods and Services Tax but for the time being the priority is the finalization of the Draft Constitutional Amendments on the Goods and Services tax so that the Amendment Bill may be introduced in the Parliament. However, the fact is that still the Centre and the States are not agree on even the draft of the Constitutional Amendment Bill.

Now with the recent statements of the Finance Ministry that the proposed Goods and Services Tax regime will not implemented by April1, 2011and also the timeframe for the roll out of the Goods and Services has not been set yet, the future of Goods and Services Tax seems to be Nebulous and now it only depends on the Consensus between the Centre and the States on the issue of the Constitutional Amendments.