State FMs meet today on Constitution Amendment Bill for GST

Passage of GST would be a feat for the UPA govt, which is getting flak for lack of big reforms

The Empowered Committee (EC) of State Finance Ministers will meet here later today to take a call on the Union government's proposal on revised constitution bill for goods and services tax.

The meet was called after Finance Minister P Chidambaram took a tough stand of linking compensation for revenue loss due to cut in central sales tax (CST) to approval for the bill by states.

The finance ministry also wants the EC to expedite work on the GST legislation. Release of Central Sales Tax (CST) compensation to states is part of the proposed bargain.

Otherwise, the committee was to meet next month.

For 2013-14, the government had budgeted Rs 9,000 crore towards compensation to the states for losses on account of reduction in the CST rate but the money is yet to be released. Chidambaram has told the states they will get CST compensation only in return for help in taking the Constitution amendment Bill and the GST legislation forward at a fast pace, said a ministry official. 

Industry is putting pressure on the government to introduce GST. Though the rollout is not possible during the tenure of the current government, with a general election due in about seven months, Chidambaram is trying for passage of the amendment. It would be a feat, particularly at a time when the UPA government is getting flak for lack of big reforms. Besides, GST is a baby of Chidambaram.

Discussion on the constitution amendment tops the agenda for the meet. The EC will consider a report of a sub-committee of states’ officials, set up in the previous meeting on September 19, to reconcile the recommendations of Parliament’s standing committee on finance, the revised draft of the Bill and states’ views.

If it does not propose any major changes that open another can of worms, the Centre will table a Bill in the winter session of Parliament. It would have to be passed by a two-third majority in both chambers and then be ratified by the legislatures of at least half the states.

The revised draft is broadly in line with the agreement between Centre and states in their January 2013 meeting at Bhubaneswar and recommendations of the standing committee.

The parliamentary panel, chaired by Bharatiya Janata Party senior Yashwant Sinha (himself an ex-finance minister), had suggested a floor and ceiling rate for GST, taking decisions in the GST Council by voting and not by consensus, and removal of a provision to set up a Disputes Settlement Authority, among others. Some key areas on which states views would be crucial include inclusion of fuel and liquor in GST and subsuming in it the entry tax. 

However, they will not form part of the constitution amendment bill, according to the revised draft.

Amendment to the constitution is needed to give power to the states to tax services and to the Centre to impose tax beyond manufacturing. The next step is to introduce the legislation, which would lay down the design of GST. Once the constitution amendment is cleared, the Centre will move this in Parliament, while states will introduce the legislation in their respective Assemblies.

THE OCTOBER AGENDA

CARROT

    Release of Rs 9,000-crore Central Sales Tax compensation to states

STICK

    Get states to agree to Constitution amendment Bill

    Push finance ministers’ panel to fast-track work on GST legislation

WHY AMEND THE CONSTITUTION?

    To give power to states to tax services; to enable the Centre to impose tax beyond manufacturing

WHAT NEXT?

    Introduce the legislation, which would lay down the design of GST
    After Constitution amendment is cleared, the Centre will move this in Parliament; states in Assemblies