Petroleum, alcohol derail GST talks

Negotiations near deadlock, as states oppose Constitution Amendment Bill

Negotiations between the Centre and states to move to the Goods & Services Tax (GST) regime have hit a roadblock again, with the latter opposing the former’s proposal to include petroleum products and alcohol under the ambit of the proposed reform. States have also turned down the Centre’s proposal to subsume entry tax in GST.

The finance ministry had been hoping to table the Bill in the winter session of Parliament but with no resolution on the issue in sight before the general elections, the talks have almost hit deadlock.

States, which met in the national capital on Monday to consider the revised draft Constitution Amendment Bill prepared by the Centre, did not agree on the provisions regarding petroleum, alcohol and entry tax, as that might dent their revenue collections. A final decision is expected to be taken at the next meeting of the empowered committee (EC) of state finance ministers in Meghalaya next month.

BACK TO START LINE?

• Aug 7: Parliament’s standing committee files its report on Constitution Amendment Bill
• Sep 18: Centre sends draft of the Bill to the empowered committee (EC) of state finance ministers; aims to table it in Parliament’s winter session
• Sep 19: EC meets and sets up a sub-committee to look into the draft Bill
• Oct 21: EC says most states opposed to inclusion of petroleum, liquor in GST
• Nov 15: States to meet again in Meghalaya to finalise their views on the Bill

“Most states have opposed bringing petroleum products and liquor under the GST framework. Some are also opposed to subsuming entry tax in GST,” EC Chairman A R Rather told reporters.

Though states have been insisting it be left to local bodies to collect entry tax, they had earlier given their in-principle approval to keeping petroleum outside the Constitution Amendment Bill, a measure recommended by Parliament’s standing committee on finance. The finance ministry had agreed to keep it outside the Bill but within GST.

A U-turn now might put the Centre in a fix. The standing committee had also suggested including entry tax in GST.

Some states also suggested the Centre should not push GST before the general elections in 2014 and let the new government take a call on it.

“The term of the present Lok Sabha is expiring in May 2014. Therefore, in the interest of the federal democracy, the present Lok Sabha should leave such an important issue for decision by the next Lok Sabha,” Madhya Pradesh Finance Minister Jayant Malaiya said in his speech.

About a dozen states gave their representation on the draft Bill in the meeting on Monday, while the rest will present their views on November 15-16 at the meeting in Meghalaya. These states are also likely to express reservations on the draft Bill, bringing back talks on GST to square one.

Now, either the Centre will have to agree with states’ demands which will mean turning down the Parliament panel’s recommendations, or convince the states. Earlier, Finance Minister P Chidambaram had made it clear that if states came on board on GST, they would get Rs 9,000 crore as compensation this year for revenue loss on account of a cut in Central Sales Tax rates.

A finance ministry official said the Centre was still hopeful of a resolution at the Mehgalaya meeting.

GST has already missed several deadlines due to differences between states and the Centre over various issues. The Centre intends to table the Constitution Amendment Bill in Parliament’s winter session so that a message is sent out to industry that the Centre is clearing a major hurdle in the way of GST, which seeks to subsume most major state and central indirect taxes and can give a push to the economy.