States vote out a few GST roadblocks

The victory of the Congress and its allies in three out of five states may make it easier for the United Progressive Alliance (UPA) government to move forward on the Goods & Services Tax (GST).

While the results strengthen the hands of the government, the defeat of DMK, a Congress ally, has a positive spin-off too. DMK has been vehemently opposing GST saying it will affect the financial autonomy of states in its present form. AIADMK, which has come to power in Tamil Nadu, fully backs this reform in the indirect tax system.

While Tamil Nadu was vocal in its opposition along with Uttar Pradesh and the Bharatiya Janata Party (BJP)-ruled states, Kerala’s Left Democratic Front government had concerns over a few points but was broadly in agreement with the government.

“In these three states (where the Congress has won), the opposition to GST was not significant… (nevertheless) it will only help GST,” said Ernst & Young Tax Partner Satya Poddar.

The support of states where the Congress alliance has won and AIADMK may help the government secure the nod of 50 per cent states for the GST Constitution Amendment Bill. However, unless Uttar Pradesh and the BJP-ruled states come on board, it will have to walk a tightrope.

“It is certain that West Bengal will integrate itself into the Centre’s liberal policies, of which GST is one element. However, Uttar Pradesh is crucial. Even if power changes hands there in next year’s elections, it may not lead to a change of stance. Resistance will still be there,” said a New Delhi-based political analyst.

The defeat of the Left Front in West Bengal will also lead to a change at the helm of the Empowered Committee of State Finance Ministers.

Outgoing West Bengal Finance Minister Asim Dasgupta, who was the committee’s chairman since the time it was set up almost eight years ago, has lost. The committee will now have to look for a replacement. Bihar Deputy Chief Minister and Finance Minister Sushil Modi is seen as a likely contender.

GST, which will replace excise duty and service tax at the Centre and value-added tax in states, besides local taxes, has missed two deadlines, April 2010 and April 2011, due to lack of consensus.