Rajya Sabha panel wants clarity on roll-out of 1% tax over GST

A Rajya Sabha committee examining the constitution amendment Bill for a goods and services tax (GST) on Friday asked Revenue Secretary Shaktikanta Das to inform the members by early next month on how the one per cent tax above GST, to help the manufacturing states, will be imposed.

The committee also asked the revenue secretary for greater clarity on the compensation to manufacturing states and the fate of consuming states.

An additional one per cent tax is proposed in the Bill to help manufacturing states. Since GST is a destination-based tax system, manufacturing states such as Gujarat and Tamil Nadu have reservations over it. However, this tax to help GST might have a cascading effect since there is no provision of input credit. Recently, Chief Economic Advisor Arvind Subramanian criticised the provision, suggesting the government reconsider it.

At the second meeting of the committee on Friday, the urban development ministry and the panchayati raj ministry made presentations to the committee on the benefits of imposition of a GST regime. The urban development ministry, for instance, emphasized that GST would help boost the coffers of towns and municipalities.

A representative from the Brihanmumbai Municipal Corporation also made a presentation before the committee. The civic body earns as much as Rs 15,000 crore through octroi and local body tax; this would be subsumed once GST is imposed. The revenue secretary made it clear that it was the domain of the states to address this issue.

Incidentally, this being a constitutional amendment Bill, after it is cleared by Parliament it will need to be ratified by at least 50 per cent of all state assemblies.

Meanwhile, to ensure that the views of states, the actual "stakeholders", are taken into account, the committee will be travelling to Chennai, Kolkata and Mumbai in June.

At the two-hour long meeting on Friday, the finance ministry assured the committee that the federal structure of states will be respected and there won't be any encroachment on state jurisdiction.

States like Tamil Nadu, a manufacturing state, have opposed the imposition of GST as it would impact the revenues of the state and it affects states' fiscal autonomy. Tamil Nadu, for instance, wants its concerns to be resolved by the empowered committee of state finance ministers before the Bill is passed.