Government readies to get states back GST; Arun Jaitley to meet state finance ministers
December, 15th 2014
Finance Minister Arun Jaitley will hold discussions with state finance ministers over the next two days in a determined bid to seal a deal on goods & services tax ( GST) that his ministry officials said is as close as it has ever been. The Modi government wants to ensure this key element of its economic reforms agenda can be put in place by April 1, 2016, as part of efforts to speed up growth.
The fiscal room created by the crash in crude oil prices has given Jaitley space to walk the extra mile in his bid to assure states they will not lose any revenue once the single levy is imposed, replacing a plethora of indirect taxes imposed by the Centre and states.
"Most states are on board. Just a couple have concerns and the minister will address those in meetings over Monday and Tuesday," a senior finance ministry official told ET. Government readies to get states back GST; Arun Jaitley to meet state finance ministers With crude down to $60 per barrel, the finance ministry will make a big saving in fuel subsidies that were pegged at Rs 63,427 crore in FY14. These savings could be used to compensate states once the tax is rolled out.
The reform measure, which could add as much two percentage points to the country's GDP growth according to some estimates, has been stuck for almost five years because of the reluctance of states that fear losing both revenue and fiscal powers. The original rollout date was April 1, 2010.
The government is resolved to build a consensus on this measure by accommodating concerns of states but won't let recalcitrance of a handful — in case there are any holdouts, particularly over political considerations — derail process. "All states would benefit from GST," said another government official. "We have been discussing it for so many years... The empowered committee has also discussed it and formulated some views that are being taken on board."
The Centre is proposing to keep petroleum and entry tax within the ambit of the proposed levy, as it is keen to have a comprehensive GST. States have been demanding control over these levies. The finance minister will reiterate his assurance that states will be adequately compensated for the tax revenues they will lose to get them to drop their remaining objections.
Tax experts endorsed the urgency shown by the Centre after states raised the usual objections at the meeting of the empowered committee of state finance ministers last week.
"It is imperative that the constitutional amendment Bill is introduced in Parliament in this session to remove the uncertainty and (for) the focus to shift to creating law and procedures for an efficient and painless GST," said Bipin Sapra, partner, EY, referring to the legislation that needs to be approved for the GST process to move toward becoming reality.
Jaitley took a tough stand on the persistent delay over the same reasons as before at his meeting with state finance ministers last week. A smaller group was formed to help resolve the deadlock — Jaitley holding discussions with the head of the empowered committee, J&K Finance Minister Abdul Rahim Rather, along with his counterparts from Punjab and Gujarat.
This group made substantial progress on the issues. "We have made headway," Rather said after the meeting. Officials said most states are on board, including Karnataka and Kerala.
The constitutional amendment Bill will provide the legal framework for rolling out the levy, giving states power to tax both goods and services. As of now only the central government can impose service tax.
The amendment Bill will also create a GST council, a body that will have representatives of the states and the Centre that will take decisions on the tax after it is rolled out.
Prashant Deshpande, senior director, Deloitte, is circumspect in his expectations about the levy's introduction. "The first step is always a difficult step and putting in place a constitutional framework for the GST structure was that first step. But until then it is difficult to believe that India will walk the path of this all-important fiscal reform any time soon," he said.