States for higher GST, April rollout in doubt

States for higher GST, April rollout in doubt
The Economic Times, December 17, 2009, Page 9

STATE FMs’ PANEL SEEKS 15% PLUS RATE ON FEAR OF REVENUE LOSS

Our Bureau NEW DELHI

STATES are demanding a goods & services tax (GST) rate higher than what an internal task force of the Finance Commission has suggested, worsening doubts on whether the key indirect tax reform of the Manmohan Singh government would roll out as per schedule on April 1, 2010.

The states are seeking 15%, or more, compared with the 12% rate suggested by the task force of the commission, which decides the formula for allocation of revenues between the Centre and state governments.

“States want the GST rate to be pegged at 15% plus... The empowered committee has written to the Thirteenth Finance Commission,” Bihar finance minister Sushil Modi said.

GST is a single levy, though it could have state and central components, that would replace the plethora of indirect taxes. These levies include excise duty, service tax, additional Customs duty, surcharges at the Centre and value-added tax and local taxes such as entertainment, luxury, entry tax at the state level. It is in the nature of a consumption tax, which seeks to create a seamless pan-India market with both manufacturers and service providers having the right to offset state taxes paid on inputs sourced from another state.

States are demanding a higher rate as they fear loss of revenue once the GST is rolled out as the revenue-neutral rate agreed may not impact the aggregate collections, but at the individual state level there could be gainers and losers.

The compensation, which will be over and above the sharing of revenues recommended by the finance commission, would cover such losses. If the suggestion finds favour with states, the GST rate could be pegged at around 15-16%, which will include both the central and state components.

The empowered committee’s draft paper on GST has pitched for a dual GST structure—one rate for states and one rate for the Centre. Besides, there would be two slabs—one floor rate for essential items and one standard rate for general items, a special rate for precious metals such as gold, platinum and an exempted list of items.

The 15-16% rate would be the standard rate applicable on non-essential items and is in line with the internal projections made by the central government and state government officials working on the GST framework, a government official, privy to the deliberations, said.

A single GST rate has been proposed for services without slabs, said West Bengal finance minister Asim Dasgupta. He declined to give details of the proposed rate structure.

The empowered committee will meet finance minister Pranab Mukherjee on January 7 to sort out the issues related to constitutional and administrative changes related to the implementation of GST.

“After our meeting with him (finance minister), we would be able to take a decision on constitutional amendment and other preparations,” panel chairman and West Bengal finance minister Asim Dasgupta said, adding it may be difficult to introduce the bill in the ongoing winter session.

RATE OF INTEREST

Thirteenth Finance Commission will decide the formula for sharing revenues between Centre and states, and among states

States have demanded compensation for any loss incurred due to shift to GST

The commission, therefore, needs to know the GST framework

A task force of the commission has suggested a revenue-neutral GST rate of 12%-rate at which there will be no revenue loss at aggregate level

States have sought from the commission a rate of 15%-plus. This will increase their compensation

The finance commission will submit its report by December 31, 2009