After a 10-day Europe trip last September, the Empowered Committee of State Finance Ministers is now planning a 15-day visit to Canada in August to study the Goods & Services Tax (GST) model in that country. The committee may also have a short stopover in a European city, possibly Amsterdam or Frankfurt, to learn more from their experiences about an indirect tax system.
Ironically, in its last few meetings on GST implementation in India, the main issue of the proposed tax’s structure had been put on the back seat due to substantial differences between the Centre and some states on various issues. Instead, the the EC discussed Central Sales Tax compensation, a negative list for taxation of services and the GST-N information technology platform. It is expected that the commitment to roll out a GST might gather momentum after the proposed trip.
“Canada also has a federal system. They faced similar problems while introducing a GST. We can learn a lot from them and resolve our differences,” said an EC member.
The catch, however, is like the Europe trip last year, the states may return from Canada convinced that their demands with regard to the GST structure are valid and the Centre should relent if the GST talks are to move forward.
People familiar with the development said the proposal for a trip to Canada was mooted in the last meeting of the EC on April 18. States governments felt before making a switch to a GST, they should study the Canadian model, due to its federal structure.
“The idea was discussed, but it is in the preliminary stages at the moment. We are yet to work out details,” EC chairman Sushil Modi, also the deputy chief minister of Bihar, told Business Standard.
By August, Parliament’s standing committee on finance is likely to give its report on the Constitution Amendment Bill for a GST. The Bill may be taken up for Parliament approval in the winter session, after which it should go to state legislatures for ratification, aimed to be done by April 2013.
Last year, representatives from about 20 states, including strong opponents of the GST such as Madhya Pradesh, visited Paris, Spain, Brussels and Luxembourg to study their GST model. The trip added to their understanding on the GST, but didn’t break the ice between Centre and states. Today, too, on most contentious issues, things are where they were a year before.
After studying the European model, states did understand that GST was the way to go forward, but they also became firm that a rate band, instead of fixed and uniform rates of taxes, should be adopted.
Canada introduced a GST in 1991 and has effectively brought down the taxation rate to five per cent.
It was discussed as a travel option last year, too, but the EC later decided in favour of Europe. It has also travelled to Australia and Brazil, while finance ministry officials keep flying to various places, including New Zealand, the UK and Europe, to get a wider perspective on GST.