GST gets a Modi booster

PM has asked Jaitley to move faster on addressing states' concerns

Prime Minister Narendra Modi asked the finance ministry on Monday to hasten the process of resolving differences with and between states on the national goods and services tax (GST).

In a high-level meeting at the Prime Ministers’ Office, attended by Finance Minister Arun Jaitley, the latter’s officials briefed Modi in this regard. They told him most states had concerns on subsuming petroleum products, alcohol and entry tax in GST. And, wanted a provision in the Constitution to compensate them for any future losses after moving to the new tax regime.

“It was a stock-taking meeting. The PM wanted to know where we stand, what the way forward was, and in which areas convergence needed to be reached with the states. We have to (aim to) move forward and table the Constitutional Amendment Bill in the winter session (of Parliament),” a ministry official who did not wish to be identified told Business Standard.

The official said the ministry was considering keeping petroleum under GST, instead of excluding it constitutionally, as demanded by states, but to address the latter’s concerns on loss of revenue from this source, these could be zero-rated. Meaning, states can continue to levy sales tax or value-added tax on petroleum products, while the Centre would retain its right to impose excise duty.

For compensating GST losses of states, the ministry is considering another legal framework to avoid amending the Constitution.

Tamil Nadu Chief Minister J Jayalalithaa, in a letter to Jaitley and her counterparts in other states, has said: “There are a number of serious concerns on the impact the proposed GST would have on the fiscal autonomy of states and the resultant huge permanent loss such a taxation system would cause.”

The Centre last Thursday met states to consider the GST model proposed by the Gujarat government. The state has extended its full support, provided its revenues are protected. Gujarat has proposed that exporting states be permitted to retain two per cent of an Integrated GST, the tax on inter-state movement of goods to be levied by the Centre. It will replace Central Sales Tax. Consuming states, however, opposed the proposal.