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GST regime unlikely from April next fiscal; states oppose draft bill
June, 22nd 2011

Introduction of indirect tax reforms through the common goods and services tax, or GST, from the next fiscal appears uncertain with fresh opposition pouring in from BJP-ruled states who claim that it would reduce their status to that of municipalities and corporations.

"The kind of draft that they (Central government) have presented... I do not think it could be passed. Which state will agree to become a municipality or corporation? To hand over all the powers to the Centre and then beg before it for money is against the spirit of the Sarkaria Commission report," Madhya Pradesh Finance Minister Raghavji told reporters in New Delhi.

He said states are not inclined to accept the draft Bill, which has been circulated by the Centre, for the introduction of the GST. The Bill needs approval of two-thirds of Parliament and half of India's 28 states to become the law. Hence, BJP support is crucial at the states as well as the central level.

The Constitution Amendment Bill introduced by the Centre is reactionary, said Raghavji. "It is absolutely useless and against the interest of the states. It has provisions which will curtail the autonomy of states. The Centre is interfering in the rights of the states," he added.

The Bill was introduced in the Lok Sabha in the last Budget session. It was the fourth draft prepared by the Centre after the first three were rejected by the states, citing autonomy issues. Raghavji said there have been no changes in the latest draft as against the previous one. "In fact, the previous draft was in some aspects much better. This one is even worse," he added.

Among the objections raised by the BJP-ruled states is the proposal to bring the sales tax in ambit of the GST. "Sales tax is an exclusive state subject. Now the Centre wants to interfere with that. This is unacceptable to us," Raghavji said, adding that one of the solutions could be having separate GST regimes for the states and the Centre.

The GST would subsume most of the indirect taxes like excise duty and service tax at the central level and VAT on the state front, besides local levies. The implementation of GST, considered to be a major tax reform,has been stuck for years due to differences between the Centre and some states over the new structure. The draft is also against the spirit of federalism enshrined in the constitution, he said, adding, "This disturbs the basic structure of the Constitution."

Despite political differences, the UPA government at the Centre is hopeful of being able to introduce new indirect taxes regime from April 1, 2012. To a query on whether West Bengal Finance Minister Amit Mitra would be acceptable as the new chairman of the Empowered Committee of State Finance Ministers, Raghavji said the post should go to aneutral person.

Bihar Deputy Chief Minister Sushil Kumar Modi concurred with Raghavji's views that GST could not become operational by April 2012. "I don't think the central government will be able to implement it from April 1, 2012," Modi said.

He, however, came out in support of the proposed tax regime and termed it as a "historic reform". "This is a historic reform and we believe that the entire country should be part of this reform," Modi said. The Congress-led states, meanwhile, seem to be ready to embrace the GST. "Yes, we are ready (for the GST)," Kerala Finance Minister K MMani said. Union Finance Minister Pranab Mukherjee has sought, on many occasions, cooperation from all stakeholders, including political parties and industry, for the early implementation of the GST regime.

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