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Goods and Services Tax rollout likely to miss April 1 deadline
November, 30th 2011

While the issue of FDI in retail has paralyzed the Winter session of Parliament, the Empowered Group of state finance ministers met here on Monday and indicated that the Centre's failure to compensate them on Central Sales Tax (CST) among other pending issues would jeopardize the rolling out of indirect tax reforms - Goods and Services Tax.

Empowered Group chairman and Bihar deputy CM Sushil Modi said that there is little chance of GST rollout by April 1, 2012, following a discord between the Centre and states over several issues. "All the states are angry as still we have not received compensation, while Centre continues to deduct CST," Modi said.

"When we are creating a congenial environment for GST rollout, the Centre's approach is likely to dampen the spirit," Modi said, adding: "We are sending a strong letter to the FM...Odisha, West Bengal, Haryana are incurring huge losses."

Modi, also Bihar FM and a senior BJP leader, said he had spoken to the chairman of the Parliamentary standing committee on finance, Yashwant Sinha, who has informed him that the panel would take up GST bill only after the Winter session, and that the discussions and presentation by various stakeholders may take six months.

Will that lead to missing the April 1 deadline? "It is anybody's guess. The standing committee is still discussing the Direct Tax Code bill," Modi said.

The empowered group also expressed disagreement with the Centre's proposal to include natural gas and LNG in the declared goods list. Barring Tamil Nadu, all states opposed inclusion of the two items in the declared list. Modi said that the states want this subject to be left to them to levy. The empowered group had made its stand clear on taxing the Aviation Turbine Fuel last year that it should be out of GST, Bihar deputy CM said.

Modi said the empowered group of state FMs will meet in Bhopal in the first week of January to discuss the negative list of services. "The Centre had given us time till December 15 to give our final view on the negative list but we have sought time till January," he added.

The government had made a provision of Rs 12,000 crore in the budget for paying to states on account of CST. However, so far, the Centre has released only Rs 3,000 crore, and has now announced release of another Rs 3,000 crore, which add up to 50% of the budgetary provisions. He said there is no indication from the Centre on compensating the states beyond 2009-10 while they continue to incur losses, pending GST implementation.

The CST is a tax on inter-state movement of goods. It was reduced from 4% to 3% in 2007-08 and later to 2% in 2008-09 following introduction of Value Added Tax (VAT) by states. The Centre had agreed to compensate states till 2009-10, while sates are demanding payout for 2010-11 and 2011-12 based on the same formula.

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