Industry may have started losing hope that the United Progressive Alliance (UPA) government would be able to implement the Goods and Services Tax (GST) soon, as it requires a constitutional amendment, but Prime Minister Manmohan Singh is taking personal interest in the matter and talking to chief ministers to build a consensus, especially with opposition-ruled states.
The push by the prime minister for an early implementation of the GST was palpable when he met Bihar chief minister Nitish Kumar and his deputy Sushil Modi on Friday to discuss the power situation in the state. Soon after the meeting, Singh called Modi for an exclusive discussion on the GST and asked him to try and build a consensus on the issue. Singh told Modi to take personal interest in building a consensus on the GST and urged him to speak to all Opposition-ruled states, specifically to states in which the Bharatiya Janata Party (BJP) was in power.
The UPA is aware of the fact that without the BJPs help, a constitutional amendment would be difficult to achieve. Modi is scheduled to meet finance minister Pranab Mukherjee on April 17. While Modi may ask the finance minister to reconsider his decision to stop compensation to states for the revenue loss due to a cut in the Central Sales Tax (CST) rates, Mukherjee is likely to urge the chairman of the empowered committee of state finance ministers to bring states on board for early implementation of the GST.
The committee would meet on April 18 to discuss the issue of CST compensation, the Budget proposal to introduce a negative list for taxation of services by the Union government and progress on information technology platform GST-Network, said a finance ministry official.
The meeting would be crucial as states may try to bargain hard with the Centre before moving ahead on the GST rollout. Miffed with the governments decision to discontinue CST compensation and introduce the negative list without taking their concern on board, states have been asking the Centre to increase the CST rate to four per cent or fully compensate these for the losses and keep items already taxed by the states out of the service tax net. CST, a tax on the inter-state movement of goods, was earlier cut to two per cent from four per cent in two phases.
Interestingly, almost two months earlier, finance minister Pranab Mukherjee had told a few chief ministers implementation of the GST would be difficult because major economic policies were initiated in the first or the second year of a government. Since elections to the Lok Sabha are scheduled for 2013-14, the government doesnt want to implement the GST yet, as it would take at least two years to stabilise. Implementing the GST in the last year could have a rattling effect, and this could affect the Congress performance in the Lok Sabha elections in 2014.
Senior members in the Union government said Modi, chairman of the empowered committee on the GST, had assured the prime minister he would talk to all chief ministers and state finance ministers to build a consensus. Modi also told Singh some of the senior ministers of the government were unsure whether the GST should be implemented before the 2014 general elections.
There is also a trust deficit between the Union government and Opposition-ruled states, which suspect the Union government would not compensate these for the losses they are incurring. Since the Centre had only provided Rs 300 crore as the CST component to states in the Budget, the finance ministry has categorically said there would be no compensation for 2011-12 and the Budget for 2012-13 is silent on the CST compensation, many states believe the UPA would not compensate these for the GST as well.