Centre relents, GST not to have a uniform rate

Floor rate with a narrow band to be fixed

The proposed Goods & Services Tax (GST) on Tuesday got a fillip, with the Centre relenting on some key demands of states and paving the way for implementation of the indirect tax reform, albeit in a diluted form. Though no rollout deadline was given, many state finance ministers said the government at the Centre after the 2014 general elections should decide on the issue.

A day after clearing Rs 34,000-crore Central Sales Tax compensation to states, the Centre on Tuesday agreed to make changes to the Constitution Amendment Bill for GST.

Instead of its earlier proposal of uniform GST rates across the country, the Centre agreed to fix a floor rate of taxation, with a narrow band, besides giving states the flexibility to opt out of the tax system later, if they wanted to.
 

BREAKING THE LOGJAM
The main issues the Centre and states agreed on today

• Three sub-committees set up to address pending issues on GST
  * To look at integrated GST for inter-state movement of goods and VAT on imports
  * To advise on revenue-neutral rate
  * To recommend on avoiding dual control of central revenue dept and states’ sales tax officials
• The sub-panels would comprise central and state officials; would give reports in three months
• States want the Centre to define consensus for changes in GST
• Sushil Modi, chairman, empowered panel of state FMs, wants one-third weightage to Centre and two-third to states in GST Council
• States have urged the Centre to abolish ‘declared goods’ provision

 

Also, in a deviation from its earlier stand, it agreed on a phased rollout of GST, as in the case of value-added tax earlier. This means only states that are willing would embrace GST from the beginning. Others could join later.

“This was a historic meeting, as we moved forward on many issues. There is a consensus on GST design,” Sushil Modi, chairman of the empowered committee of state finance ministers said at the end of a two-day meet.

Some state FMs said every state had its own problems and arriving at a consensus would be difficult. They indicated since general elections were due next year, the Opposition would not let the UPA government take credit for introducing the tax reform.

“The new government should take a call on GST after the 2014 elections. The GST design BJP wants will be friendly to states,” said Madhya Pradesh Finance Minister Raghavji.

Petroleum products would be part of GST but kept out of the Constitution Amendment Bill, so that the Bill does not have to be changed every time there is a change in these items.

Sections proposing a dispute settlement authority would be removed from the Bill. The GST Council would evolve a mechanism for dispute resolution. The quorum for holding meetings of the council would be raised to half the members from a third.