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No end in sight, between Centre & States over model of GST
October, 21st 2010

It appears there is no end in sight to the differences between the Centre and the states over the model required for introduction of the Goods and Services Tax (GST). The next meeting of the Empowered Committee of the State Finance Ministers in Goa may not give any impetus to the talks on GST, which suffered a setback in June when the Centre came out with a Constitutional Amendment draft for GST.

The contentious issue of Constitutional Amendment is again on the agenda for the meeting on October 29, but the states opposing the draft Bill have not softened their stance since the last meeting in Delhi on September 20.

There is no consensus even among the states on all three areas Gujarat GST model, Article 279A and 279B of the Constitution, and entry tax which will be discussed in the next meeting.

West Bengal, Madhya Pradesh and Gujarat have given three different models of GST, but the Centre has found that none of these options is viable because they are against the basic structure of the Constitution. Some states, on the other hand, think the Centres model would hit their fiscal autonomy.

While West Bengal and Madhya Pradesh suggested sharing of service tax with the states without amending the Constitution, Gujarat said states should be allowed to collect both Central GST and State GST and then transfer the Centres share after deducting their compensation amount.

Government officials and experts say it is more politics than economics which is stopping the state governments from moving ahead with GST. According to finance ministry officials, as long as states do not come up with a practical solution, there cannot be a third draft on Constitutional amendment.

Initially, it seemed the Centres proposals on veto power to the Union finance minister in the GST Council and a binding Dispute Resolution Mechanism derailed the talks. States like Gujarat and Bihar, which were always supportive of GST, opposed the draft. The Centre, which was planning to introduce the Constitutional Amendment Bill in the monsoon session of Parliament that ended in August, decided to accept the demands of the states and came with a revised draft in less than two months.

Before the August 18 meeting of the empowered committee, Finance minister Pranab Mukherjee met Leader of Opposition in the Lok Sabha, Sushma Swaraj, to garner the support of BJP-ruled states. All Congress-ruled states were convinced to give their approval to the draft Bill.

The government was confident of getting the states approval this time, but BJP-ruled states as well as Tamil Nadu and Uttar Pradesh put a spanner in the works of the government by seeking a months time to analyse the draft Bill. The move was seen as a tactic to delay the introduction of the Bill in Parliament. When the states met after a month on September 20, there was no change in their stance on GST.

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