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States can choose to stay out of goods and services tax: Sushil Kumar Modi
January, 31st 2013

Unwilling states will have an option to stay out of the goods and services tax (GST) regime for a fixed period of time after the Centre implements it, chairman of the Empowered Committee of State Finance Ministers Sushil Kumar Modi said here on Tuesday.

"There are no such provisions in the current GST Bill. However, the Centre has agreed to insert a clause to allow states, who may have some reservations about the new tax structure, some time before jumping on the bandwagon. Other modalities of tax in those states during the interim period will be worked out," Modi told mediapersons after the end of the two-day meeting of the empowered panel here.

Describing the meeting as "historic", the Bihar deputy chief minister said the states reached a broad consensus on GST design, important provisions and common procedures though there are still some contentious issues to be ironed out. "We have moved forward and made some significant progress," Modi said.

In a major bargain, the states managed to convince the Centre to end provisions of declared goods, Modi said. Under the existing stipulations, the Union government can unilaterally decide tax rates on certain commodities and states have to comply with it. However, the concept of declared goods will be phased out and states will have the autonomy to decide on state GST. Similarly, petroleum products will come under the purview of GST, the empowered panel chief said.

The central government also agreed to do away with the proposed disputes settlement authority (DSA). "States were of the view that since the GST Council chaired by Union finance minister and having a state FM as its vice-chairman would be constituted, another authority having no state representatives was undesirable. Section 279 (B) dealing with the DSA will be deleted from the 115th Constitutional Amendment Bill (GST Bill). The GST council will directly resolve any disputes involving the states," Modi said.

Modi said the quorum for GST council will be 50% instead of earlier proposed one-third members. The Centre will have one-third representation in the council with the rest representing the states, he said.

There will be a "floor rate" for state GST. No state can have tax on an item below the floor rate. Similarly, there will be a "narrow band" to ensure maximum limit of tax rate on a particular item, Modi added.

Modi said in case of calamities, states will have powers to raise resources by levying additional GST. North eastern states and Jammu and Kashmir can have special schemes under GST because of their special status.

Three sub-committees will be constituted to discuss the contentious issues such as place of supply rules (tax rules on service providers based in one state but offering services in others states), revenue neutral rates (to prevent revenue loss after the new regime) and exemption of dual control (common implementing authorities for central GST and state GST). These panels will submite their recommendations within the next three months, he added.

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