UPS AND DOWNS IN GST

In our previous article we had discussed about the issues which are coming in the way of the rolling on the GST. Among these issues, the major one is the “Veto Power”.

The earlier draft was rejected by the states in the meeting of the Empowered Committee of the States Finance Ministers after they said it has vested the Union Finance Minister with a Veto power over the States taxation issues. This draft had proposed setting up of a GST council to take decisions on the GST with the consent of the Union Finance Minister and two-third majority of the States.

However, the revised draft of the Constitution Amendment Bill on GST drops the contentious issue of giving veto power to the Union Finance Minister in order to bring states on board. The revised draft proposes that any decision on GST can be taken only if there is a complete consensus between the Centre and the States. Also, the Union Finance Minister will remain the Chairman of the Council which will take decisions on the indirect tax system and States will be given Deputy Chairmanship of the council on a rotational basis. Besides the revised draft also said that any decision taken by the GST council, that will govern all issues on indirect taxes, will not be binding on the states. This point is mainly covered in the revised one because of the “autonomy” concerns of the states.

Now the question comes why the Government is basically focusing on the Constitutional Amendment Bill? Currently, the Centre can impose tax on goods at the factory gate and services while states can impose tax at the retail level of goods. States do not have the power to tax services. The proposed single tax will, therefore, require constitutional changes to allow Parliament and state assemblies to impose tax on the same items.

Union Finance Minister Pranab Mukherjee, who met State Finance Ministers in an effort to make a consensus for the introduction of a Constitutional Amendment Bill in the ongoing monsoon session of Parliament, could not convince all the states to agree to diluted proposals. It was expected that diluting the Veto power of the Centre, proposed in the earlier draft, would satisfy the states particularly the BJP ruled ones and they would support the rolling on of the GST. But the news which came from the BJP side put aside all the expectations of the Finance Minister. While initially only, Chattisgarh and Madhya Pradesh were among the NDA states opposing the implementation of the GST but now all the eight states including Gujurat, Karnataka, Himachal Pradesh, Uttarakhand have voiced their Opposition.

Opposing States are basically asking for one month time to study the revised draft bill. Therefore the Government is in a fix over the introduction of the Constitutional Amendment Bill on the Goods and Service Tax during the current session of Parliament. GST has already missed the original deadline of April 2010. If the bill is not introduced in the monsoon session, the Government will find it difficult to meet the April 2011 deadline also.