GST remains a far cry as government fails to convince states

Despite the tall promises of the Narendra Modi-led NDA government, the proposed goods and services tax seems as far away as ever, as several states today rejected the draft of the GST bill, saying it does not address their concerns on the issues of compensation, entry tax and the tax on petroleum products.

"There is no consensus between the centre and states on three things - the compensation issue, petrol tax and entry tax. The Empowered Committee is not supporting the bill without these three things," the chairman of the Empowered Committee of State Finance Ministers Abdul Rahim Rather said after a meeting of the state finance ministers in New Delhi.

The proposed constitutional amendment bill also does not provide for giving states compensation against any possible loss of revenue after the GST regime is implemented for five years in line with what the states have been asking for, the finance minister of Jammu & Kashmir added.

"The government hasn't agreed to our recommendations made last time, except one recommendation. We had said that the share of the union government in GST should go to the divisible pool and should be devolved among states, as has been agreed to by the Centre," Rather said.

The Empowered Committee of State Finance Ministers on the Goods and Services Tax (GST) Tuesday expressed the hope that the tax regime could be implemented by the proposed date of 1 April 2016, notwithstanding the states' differences with the centre over some key provisions.

After their meeting here, committee chairman of the empowered committee Rather said the centre had written to the committee suggesting that the threshold annual turnover for levying GST should be increased to Rs25 lakh from Rs10 lakh.

The committee had in August resolved to lower the threshold limit for imposing GST on companies from a turnover of Rs25 lakh to Rs10 lakh. As per their recommendation, GST would not be imposed on businesses with an annual turnover of less than Rs10 lakh.

Currently, the threshold for Value Added Tax (VAT) is Rs10 lakh in most states.

The empowered group also asked that states be given the legal powers to collect tax from businesses with annual turnover of up to Rs1.5 crore (Rs15 million).

"In September, the centre wrote to us suggesting that this decision of the Empowered Committee should be reviewed. The Centre suggested that the limit should be Rs25 lakh. Even if it is not Rs25 lakh, the Rs10 lakh limit should be increased.

"But finally the committee took a decision that they will go by the decision that is already taken, that is Rs10 lakh," Rather said.

He added that the final call on the threshold figure will be decided by the GST Council.
States also want petroleum, alcohol and tobacco to be kept out of the purview of the GST.
Union finance minister Arun Jaitley on Wednesday said the states will receive Rs11,000 crore this fiscal towards partial compensation for their revenue loss from the phasing out of Central Sales Tax (CST).

Observing that there has been a "trust deficit" with the states on this count, delaying the proposed rollout of the GST, Jaitley told the Lok Sabha, "I stand by my commitment made to the states in July this year. We will pay Rs11,000 crore this year itself".

There has been broad agreement with the states on most issues related to GST, he added.

The GST had first been proposed by the previous UPA government under Manmohan Singh; and while the current government is seeking to push this agenda forward, so far it has been no more successful than the NDA.