States to protest third draft of GST

States are in parleys to take on the Centre over the proposed Goods and Service Tax (GST) on February 11 in New Delhi. Besides BJP-ruled states like Madhya Pradesh, Gujarat and Karnataka, the proposed 115th Amendment Bill, 2011(a copy is available with Business Standard), or the third draft of GST, is likely to be challenged by Uttar Pradesh, Tamil Nadu and Jharkhand.

“We are still firm on our stand to oppose the Centre’s motive to strip states off their autonomy on taxation powers granted by constitution. We will mainly oppose Articles 279 A and 279 B of the proposed third draft. The former empowers Parliament to constitute a GST Council to make recommendations on taxes, and the latter provides for establishment of a GST Dispute Settlement Authority to adjudicate any dispute or complaint arising out of a deviation from any of the recommendations of the GST of the Council,” State Finance Minister Raghavji told Business Standard and asked, “Both these authorities will consume states’ power to levy taxes. Why does the Centre want to enter in sales tax domain while it has control over all other important taxes like income tax and excise tax?”

He said he had discussed the issue with his counter parts in other states. “Most of the states like Uttar Pradesh, Tamil Nadu, Jharkhand and even Maharashtra have understood the gravity of the matter and will support us in the next meeting,” said Raghavji.

States like Madhya Pradesh, Gujarat and Karnataka will also protest the proposed entry tax provisions defined in the Seventh schedule of the Constitution whereby the third draft on GST proposes taxes on goods’ entry into a local area for consumption, use or sale therein to the extent levied and collected by a Panchayat or municipality body.”

Raghavji pointed, “This draft indicates the myopic vision of the Central government that wants to push back states into tax regime of 1970s? This amendment means states will have no power to make legislations over entry tax which has been introduced in lieu of octroi and local bodies like Panchayat will levy and collect taxes?”

According to an estimate of the state government, if this provision is cleared, states like Madhya Pradesh will lose approximately around Rs 1,900 crore in the next financial year. The Article 279 A of the proposed draft defines, the Council will have powers to make recommendations on taxes, cesses and surcharges levied by the Centre, the states and local bodies, to be subsumed in the GST.

“This article grants powers to the Centre to decide not only rates but also threshold limits of turnover below which goods and services taxes shall be exempted. Moreover only the Centre will decide the goods and services to be exempted and exemption limits. Is this possible in a democracy and largely cash economy like India?” he asked. The states may also challenge the clause 279 B of the proposed Act that empowers Parliament alone in cases of dispute or complaints arising out of deviation from the recommendations of the GST Council.