Finance Minister P Chidambaram on Thursday said that the Centre will soon bring in a major change in the taxation system in the country. Speaking to reporters, Chidambaram said, "We are moving towards bringing a major change in the taxation system in the country. We are working on the GST."

GST is the Goods and Services Tax that, if implemented, will replace all other indirect taxes levied on goods and services.

The Finance Minister said that there was consensus among states on the implementation of GST. "However, we want to discuss the design of the GST," he said, adding that two committees will be formed to sort out issues on its implementation.

The Finance Minister said that there was consensus among states on the implementation of the GST.
Working towards bringing in the Goods and Services Tax: P Chidambaram

States want Centre to resolve CST issue before GST rollout

The states reportedly want the central government to resolve the Central Sales Tax (CST) compensation issue before moving ahead with the rollout of the Goods and Service Tax (GST) regime. The Empowered Committee of State Finance Ministers, chaired by Bihar Deputy Chief Minister Sushil Modi, on Thursday discussed the CST compensation issue and setting up of the dispute settlement authority.

"States want resolution to their CST compensation demand. If demand not met, the states will not go ahead with the GST rollout. They also have an issue with the design of GST," Madhya Pradesh Finance Minister Raghavji told reporters after the meeting.

States, he added, are opposed to setting up of dispute settlement authority as it would impact their autonomy. GST, which will empower the Centre and states to simultaneously tax supply of goods and services, was to be introduced from April 2010, but has missed several deadlines. CST is collected by the Centre and distributed among states. As a pre-cursor to GST, the Centre and states in April, 2007, had agreed to phase out CST over a period of three years and in line CST rate was reduced to 3 per cent and then to 2 per cent.

The Centre had already compensated states for losses up to 2010-11. As the Centre refused to go on compensating the states for delay in implementation of GST, states had argued that when it was decided to phase out CST, it was presumed GST would be implemented from April, 2010. In a letter to the Empowered Committee dated January 27, Finance Secretary RS Gujral said that states would not be paid any CST compensation from 2011-12 onwards and the payout for 2010-11 will be restricted to the Rs 6,394 crore that had already been paid against the Rs 19,000 crore demanded by the states.

The states have also suggested that they should be allowed to restore the CST rate to four per cent in case the central government was not able to pay any further compensation. Besides the states also have serious reservations on some crucial components of the GST design like creation of a Dispute Settlement Authority (DSA) in the constitution itself to prevent deviations in the structure.

The states feel that disputes can be resolved through consensus rather than a DSA with such level of authority. The DSA, as proposed in the Bill, would deal with grievances of the Centre and the states with regard to GST. The body would consist of a chairperson and two other members.

The chairperson will be one who has been a judge of the Supreme Court or a Chief Justice of a High Court, while the members shall be persons of proven capacity and expertise in the field of law, economics or public affairs. After postponing it thrice, the Centre now aims to introduce the GST from April 1, 2013. Once implemented, it will subsume most of the indirect central and states taxes, duties and service taxes.

The Constitutional Amendment Bill, which will allow states to tax services and Centre to levy tax on goods at retail level, is now being vetted by the Standing Committee on Finance. Further, states also wanted flexibility in GST rates and were pitching for freedom to set rates within the agreed band. The constitutional amendment bill has to be passed by two-thirds majority in both Houses of Parliament and ratified by at least 15 state assemblies to take effect.