Bihar deputy chief minister and empowered committee of state finance ministers chairman Sushilkumar Modi on Saturday asserted that the goods & services tax (GST) regime would help increase India's gross domestic product by 1-1.5%, create further conducive atmosphere to do business in more easier way and make manufacturing goods competitive. However, he argued that the Government of India and states need to resolve differences on the provisions in the Constitutional Amendment Bill and various provisions relating to the encroachment on fiscal autonomy, fixation of tax rate, imposition of levies, revenue loss and establishment of dispute settlement authority.
"We are inching towards GST but not very fast. One of the major obstacles has been crossed as the parliamentary standing committee on finance will start deliberations from June 8 on the Constitutional Amendment Bill. The committee chairman Yashwant Sinha has assured to complete the deliberations and preparation of report before the monsoon session of the parliament. It is quite essential to have constitutional amendments for empowering the Centre to levy tax on sale of goods and the states for levy of service tax on imports and other consequential issues. After the constitutional amendment Bill is passed by a two-third majority in both the Houses, it needs ratification of at least half of the states. The constitutional amendment is crucial as it seeks to confer simultaneous powers on the Centre and states to levy taxes on goods and services," Modi said in his keynote address at the conference organised by Indian Merchants' Chamber.
Moreover, the establishment of goods and services tax network by August this year would be yet another milestone to shift to the GST regime.
At the outset Modi refused to give any deadline for the roll out of GST but reiterated that the Centre needs to address the various concerns raised by state governments. "Major concern is with regard to fiscal autonomy. Some of the states are of the view that the constitutional amendments will take away the fiscal autonomy given by the Constitution since 1950 and also the proposed article 246 A inflicts severe blow on provision of distribution of legislative powers by introducing a separate category. It is felt that enabling the Centre to tax the sale/supplies of goods is in fact as necessary as enabling the states to concurrently tax services in order to have a comprehensive tax regime on a bundle of goods and services in which the goods and services divide is a continuum and to enable a free an seamless flow of credit across the value chain," Modi noted. According to him, states have suggested standard and lower rates and there should be floor rate with narrow band of 2-3% alike European Union.
Further, states have raised serious concerns over the proposed article 279 B on GST dispute settlement authority. Instead, states have argued that the proposed GST Council headed by the Finance Minister and one representative of Centre and the balance represented by states and union territories be vested with powers to resolve disputes. "Any dispensation involving multiple partners does require a mechanism to resolve disputes and a provision can be made empowering the GST Council to decide about the mechanism to resolve the disputes arising out of its recommendations," he added.
"Even if one were to concede that the implementation of the proposed dual GST would involve whittling down the fiscal autonomy of the states, one must not lose sight of the fact that even the Centre too would in that sense, compromise its autonomy to quite an extent since its exclusive authority to tax would be subjected to a decision mechanism in which the states, as a combined entity, would enjoy greater say than that of the proposed article 279 B provides for the establishment of GST dispute settlement authority," Modi said.
On apprehensions of revenue loss, Modi recalled that similar concerns were voiced at the time of introduction of value added tax (VAT). 'However, the launch of VAT has spurred growth in revenues states. The states, whose revenue growth used to 12-13%, are currently showing growth ranging between 24% and 30%. "At present, not more than 15% of the total service sector is being taxed and even if a substantial part of the currently untaxed service sector were to fall in the negative list, that still leaves considerable potential for tax field from the service sector. Additionality potentially accruing to the states by way of taxing services will ,in all likelihood, be not also insignificant as is being currently perceived by some of the states," he observed.