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Goods and service tax to incentivise states
April, 23rd 2013

The proposed Goods and Service Tax (GST) is designed in a way that it will not hamper the financial autonomy of states, rather it will incentivize them, says the chairman of the empowered committee of state finance ministers.

The committee has been tasked with building a consensus on this major indirect tax reform. "We have sorted out 80% of the issues raised by various states," said Sushil Kumar Modi, the chairman of the committee. He said the committee was also looking at incentivizing states that agree to implement GST, in line with international practices.

"Canada and Singapore have similar structures where they have incentivized states who implemented GST." Goods and Service Tax (GST) is a reform that seeks to create a common market for all goods and services in India.

Many states have been reluctant to join the initiative as they fear they may lose the revenue to the central government post the implementation. "For such a big reform, we need time and we can't blame central or state governments for the same."

Sushil Modi ,who is the deputy chief minister of Bihar, praised the efforts of the finance minister in rolling out GST earliest.

"Ever since P Chidambaram has taken over as finance minister, things are moving fast in favour of rolling out GST," he said, adding, "This is (GST) his (Chidambaram's) baby and since 2007 he is trying to get it implemented."

The government believes that GST will make imports cheaper and make exports more competitive. It will add around 1.5% to 2% to GDP. As of now, there is no national market in India and the introduction of GST will make inter-state trade more efficient, is the logic.

Hence, the consensus building exercise. Modi said that states were seeking clarity on revenue neutral rate, threshold revenue limit and dual control. Three subcommittees have been set up in this regard. "We want to make sure there is no loss of revenue for states even when they are making transition to GST," he said.

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