NEBULOUS ENVIRONMENT OVER THE GST

The progress in the proposed Goods and Services tax regime which once taken a very good pace seems to be slowing down just because of the absence of the one word i.e. Consensus. For most of the people it is just like all other words but that word matters a lot to all those who have an area of interest in the Indirect Taxes. As Consensus is the only word now 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.

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. “Goods and Services Tax [GST] regime will not be implemented from April 1, 2011 and no timeframe for the introduction of the new indirect tax system has been set yet”. These are the recent statements from the Finance Ministry which are only creating Nebulous environment for the future of the Goods and Services Tax.

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.

Meanwhile, some key areas are in discussion that matters a lot in the upcoming new tax regime i.e. Goods and Service Tax. Among these areas, one is the treatment of the Coal. Orissa Government wants to exclude Coal from the list of the proposed Goods and Services Tax. It is in discussion with other Coal-bearing states like Chhattisgarh and Jharkhand for creating pressure to keep coal out of the scope of the GST. At present, 4% VAT is levied on Coal. If it is included in the GST list, the effective rate would be 12% as both State GST and Central GST would levy 6% each n Coal. As a result, GST on Coal would have a direct effect on power cost. The natural gas which is also used for the generation of power has been kept out of the GST. Therefore, Orissa has argued that Coal also must be kept out of GST.

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.

Having already compromised a lot to accommodate the concerns of the States, the Centre is unlikely to propose a fresh set of Constitutional Amendment to facilitate the Goods and Services Tax. Now the burden is all on the States to take forward the process of the GST. It is ever called that “Fruit of Patience is Sweet” so we can hope that the delay in coming of the GST will bring fruitful result with its roll out.