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GST compensation: Bihar for Constitutional amendment
September, 11th 2014

Bihar government today demanded a Constitutional amendment to compensate the revenue loss to states likely to be caused once the Centre implements proposed GST.

Addressing a meeting of Finance Ministers of states organized by the 14th Finance Commission, Bihar Finance Minister Vijendra Prasad Yadav said consequent upon the implementation of Goods and Services Tax (GST), major changes in the condition and direction of indirect taxes cannot be ruled out.

This system is bound to have a far-reaching impact on the most important source of revenue of the States, he added.

"The Commission is well aware of the financial condition of various states and their dependence on the Centre and in the given situation any reform, howsoever progressive it may sound, cannot be adopted by the states until and unless they are convinced that this will not have any adverse impact on their revenue.

"There is fear of loss of revenue to the states due to implementation of the proposed GST," he said.

In view of present system of compensating the central sales tax, the Minister said, there is a compulsion of not accepting anything less than a constitutional solution in the matter of definite loss to the states due to GST.

Yadav demanded that the Commission place a proposal of amendment to the Constitution in conformity with the recommendations of Parliamentary Standing Committee to compensate the loss likely to be caused to the States.

It is relevant that a visible growth in the resources of the states during the recent years, Yadav said, has come at a time when the pace of economic development has been by and large better while the rate of inflation had been comparatively higher during the last few years.

"If the better condition of States' internal resources is seen in this context, it would not be fair to give the major credit for this improvement to the VAT system. It was difficult to assess the condition of the economy and inflation at the time of implementation of GST and as such it is also unpredictable as to what extent this system would affect the revenue of various states," he said.

He felt that after implementation of GST while states would not receive the central sales tax available to them, even the tax realized in the seller state on the input involved in inter-state sales would have to be transferred to purchaser state and they will have to sustain loss of revenue.

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