After EU visit to study how the tax works, state finance ministers convinced the Centre’s proposals need change.
The Europe trip of the Empowered Committee of State Finance Ministers was meant to untangle the various knotty differences on the proposed Goods and Services Tax (GST). It may, however, make things a bit more complex for the central government plan to roll out the new indirect tax regime from April 1 next year.
After studying the European model, the states are convinced that GST is the way to go ahead. However, they are also convinced that a rate band should be adopted in India on the lines of Europe, instead of fixed and uniform rates as suggested by the Union finance ministry.
“They (European countries) have kept the standard rate at 15 per cent and there is a band which ranges between 15 per cent and 25 per cent. So, there is flexibility, which we were also demanding. Also, there is a reduced rate of five per cent. They also have exemption thresholds. There is no single rate in Europe,” Empowered Group chairman Sushil Modi told Business Standard after returning from the tour last week.
The tour appears to have provided more information to the states about GST but it has not softened their stance on many critical issues which have become an impediment. The states have been demanding some flexibility to adjust the rates or levy cess in a time of natural calamity.
They argue that various options, including a floor rate, a ceiling on rates and a rate band, should be considered to help them raise additional resources and protect their fiscal autonomy.
Modi said if 27 countries could work together and have a common market, as in the EU, there was no reason why India couldn’t have multiple rates. “The tour was very useful and informative. I’m more convinced about the need to have GST. We can learn many things from Europe and implement them according to our needs,” he said.
However, when asked whether states were willing to implement the European model of a Dispute Resolution Panel whose decisions are binding on member-countries, Modi said the requirements of India would have to be kept in mind. He said committee was trying to build a consensus on all the issues.
A finance ministry official, on the other hand, said the GST models of Canada and Australia were better suited for India’s needs. The official said the GST rates of 12 to 20 per cent suggested by the Centre last year were only indicative and the actual rates would be decided by the GST Council comprising the Union and state finance ministers.
The Empowered Committee is likely to meet finance minister Pranab Mukherjee next month to discuss all these issues and apprise him of their 10-day tour of Paris, Spain, Luxembourg and Belgium.
The ministers were given presentations on the subject matter and scope of GST, taxable transactions, supply of goods and services, imports of goods and intra-community acquisitions, taxable persons, taxable amounts, chargeable events, exemptions, rates, deductions, planning of actions and selection of taxpayers, and control of intra-community fraud.
The visiting state representatives were from Orissa, Bihar, Chhattisgarh, Himachal Pradesh, Jharkhand, Madhya Pradesh, Punjab, Uttarakhand, Andhra Pradesh, Arunachal Pradesh, Assam, Delhi, Haryana, Jammu & Kashmir, Kerala, Maharashtra, Manipur, Rajasthan, Mizoram and Meghalaya.