Jaitley keeps liquor out of GST, includes petrol

The government has kept alcoholic liquor out of the purview of GST - which is bad news for tipplers in Maharashtra, where local taxes are the highest in the country and a bottle costs almost 100 per cent more than the official retail price.

And though petrol has been brought under GST, the tax will not be applied on it until notified at later date. This again will hit Mumbai and Maharashtra users of fuel (including aviation fuel) hard, as taxes will remain among the highest in the country.

The government, as promised, introduced the Constitution (122nd Amendment) Bill, relating to the long-awaited goods and services tax, in the Lok Sabha on Friday, paving the way for the promised rollout of the new indirect tax system from 1 April 2016.

In accordance with the discussions that Jaitley held with the state finance ministers earlier this month, he has made the compensation provisions to the states a part of bill, and conferred simultaneous powers to the union and state legislatures to legislate on GST.

The bill also provides for creation of a GST Council, which will be a joint forum of the centre and the states. GST, the much awaited tax reform, will simplify and harmonise the indirect tax regime in the country. It will broaden the tax base, and result in better tax compliance due to a robust IT infrastructure.

According to the bill, all goods and services, except alcoholic liquor for human consumption, will be brought under the purview of GST. Petroleum and petroleum products have also been constitutionally brought under GST, but they will not be subject to the levy until notified at a future date on the recommendation of the GST Council.

The present taxes levied by the states and the centre on petroleum and petroleum products are sales tax/VAT, and excise duty; and these will continue to be levied in the interim period.

Jaitley said, "We have made sure that no state will lose a rupee of revenue. It will be a win-win situation. The states would be compensated on account of the central sales tax (CST). The first instalment will be released before March 31 next year." The discussion and debate on the Bill will begin in the next session of the Parliament.

The bill makes it the centre's responsibility to compensate states for loss of revenue arising on account of implementation of the GST for a period up to five years. A provision in this regard has been made in the Amendment Bill The compensation will be on a tapering basis: 100 per cent for first three years, 75 per cent in the fourth year and 50 per cent in the fifth year.

This council would function under the chairmanship of the union finance minister and have ministers in charge of finance/taxation or minister nominated by each of the states and union territories with legislators as members. The council will make recommendations to the union and states on important issues such as tax rates, exemptions, threshold limits, dispute resolution modalities, etc.