Implementation deadline for GST unrealistic: States

The government may have to postpone the deadline for implementing the goods and services tax (GST), if state governments have their way. In a meeting of the empowered committee of the state finance ministers on Thursday, the states made it clear that the April 1, 2010, deadline for rolling out GST was not realistic, given the issues related to IT infrastructure and the compensation for the states.

Officials from the finance ministry and state governments said this was for the first time that states clearly said the deadline was not acceptable to them.

An official from the finance ministry said the states did not want any deadline for introducing GST. “They do not want to adopt GST without fully understanding its implications. They are saying the time is too short and, if implemented without due deliberation, it may have an adverse impact in the future.”

Separately, Finance Minister Pranab Mukherjee told reporters: “Chairman of the empowered committee is trying (to resolve the issue). I am hopeful about convergence of views.”

Asim Dasgupta, chairman of the empowered committee of state finance ministers, however, said they would come out with a draft paper on GST in four weeks to facilitate its implementation by the April 1, 2010. The draft paper would include responses of the states and the industry, necessary constitutional amendment and the levy of GST on imports.

Pratik Jain, executive director, KPMG, agreed with the states that a lot of issues needed to be resolved before the government implemented GST. “Time has to be given to the industry to agree with the broad framework of GST. Things have to be done in a time-bound manner. The government can even look at implementing it in the middle of the year.”

The issue of compensation to the states for loss in the central sales tax (CST) was widely discussed in the meeting. Under the GST structure, the tax would be collected by the states where the goods or services are consumed. States are of the view that this may result in huge losses for the producer states and the Centre would be required to compensate them for the loss of revenue.

“We are not against GST. We just want to go slow on it. The Centre should first decide how it would compensate states for the loss of revenue in the current year as well as in the past years,” said a top official from the Gujarat government.

“There was an issue where the states felt action was immediately required by the government. It is in relation with compensation for loss of CST. We have reduced CST already from 4 per cent to 2 per cent and states are losing revenue in the current year,” Dasgupta said. He added preparation of IT infrastructure was essential for tracking inter-state transactions of goods and services.

GST would replace most of the indirect taxes, like excise, service tax, value-added tax, octroi and purchase tax. States have more or less converged on the list of items to be put in the higher rate and the lower rate. The committee is now planning to meet the finance minister on October 27.