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Finance Minister wins over states on country-wide tax for goods and services
December, 16th 2014

Union Finance Minister Arun Jaitley achieved a major breakthrough on Monday by finally hammering together a consensus between state finance ministers on the elusive goods and service tax (GST) issue, which will pave the way for a single nationwide market.

The Centre agreed to keep petroleum products, such as petrol and diesel, out of the GST in return for states agreeing to entry tax being subsumed in the new tax regime proposed from April 2016.

States earn over 50 per cent of their revenue from taxes on petrol, diesel and jet fuel, and wanted to exclude these goods from the purview of GST so that they could continue collecting taxes on these products.

The taxes on petrol goods are also easier to collect as they are factored in by the public sector oil companies who pass them on to the state governments.

Legal opinion

The Union Finance Ministry will also seek legal opinion to accommodate in the Constitution Amendment Bill the issue of compensation to states for revenue loss because of the subsuming of all indirect taxes in the GST.

The Government wants to bring in the GST Bill in the ongoing winter session of Parliament.

The states have been insisting that the clause for compensation be included in the Constitution Amendment Bill in the three rounds of talks that were held last week.

A compromise was reached after an hour-long meeting between Jaitley and finance ministers of seven states - Punjab, Haryana, Gujarat, Tamil Nadu, Maharashtra, Karnataka, and Jammu and Kashmir. Concerns of other states have already been addressed.

It was agreed that petroleum goods would be kept out of the Goods and Services Tax (GST) Bill for a few years, and a decision to include them in the new tax regime would be taken later.

“The matter (GST) was discussed elaborately. The discussions are moving in a positive direction,” Empowered Committee chairman Abdul Rahim Rather told reporters after the meeting.

Talks between the Centre and the states over GST framework were deadlocked last week over entry tax and VAT on petroleum products being included in the GST regime.

The Centre has agreed to fully compensate the states for three years after GST roll out and the structure will be included in the Bill.

Thereafter for the next two years there will be part compensation, a source said.

Earlier in the day, Minister of State for Finance Jayant Sinha had said the Government expects to table the Bill in the ongoing winter session of Parliament.

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