Compensate states for revenue loss on GST for 5 years: panel

21 July 2015

A Rajya Sabha Select Committee on Monday adopted a report, which suggests that the centre should compensate states for revenue loss for five years after the introduction of the goods and services tax even as Congress members of the panel filed a dissent note.

The panel has suggested an amendment to Clause 19 of the bill, stating, ''Parliament may, by law, on the recommendations of the GST Council, provide for compensation to the states for the loss of revenue arising on account of implementation of the GST tax for a period of five years.''

This could clear a major hurdle in the passage of the GST bill in the upper house, which is likely to be submitted to the Rajya Sabha later in the week.

The panel has recommended that states may be allowed to levy one per cent additional tax on inter-state supply of goods but with a rider. The panel says that in Clause 18, which discusses the additional tax, the word 'supply' should be explained as 'all forms of supply made for a consideration.'

Various stakeholders had argued that such an additional tax is against the spirit of the GST. The panel also observed that this can have a cascading effect.

The panel has also agreed that the centre, with 75 per cent of votes, should have more weightage in the GST Council where all the decisions have to be taken collectively by the centre and the states.

''So, in order to strike a fine balance, centre's vote share has been kept at one-third and that of the States at two-third,'' the report stated.

The committee felt that tobacco products should remain within the ambit of the GST. Various voluntary organisations and states had demanded that states should have the right to levy taxes on tobacco and tobacco products.

The panel also suggested that local bodies play an important role in the development process. ''The committee strongly recommends that while drafting the state GST laws, due consideration to the third tier of the government as has been guaranteed by the Constitution be given and provisions of devolution of taxes to the local bodies be made.''

Members have time up to noon today to file dissent, and sources said left parties are likely to follow suit.

The 21-member committee, headed by Bhupender Yadav (BJP) adopted the report, with support from some regional parties, including the Trinamool Congress, the Janata Dal (United) and the Biju Janata Dal.

The panel meeting was attended by Madhusudan Mistry (Cong), Anil Desai (SS), Bhalchandra Mungekar (Nom), Chandan Mitra (BJP), D Raja (CPI), K C Tyagi (JDU), K N Balagopal (CPI-M), Mani Shankar Aiyar (Nom), Naresh Agrawal (SP), Naresh Gujral (SAD), Praful Patel (NCP) and Rajeev Chandrasekhar (Ind).

The Lok Sabha had already passed the GST Bill and the Rajya Sabha had since was referred it to a select committee. The ruling NDA government does not enjoy majority in the Rajya Sabha.

The government has targeted GST rollout from 1 April next year.

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