States want protection of financial autonomy during shift to GST regime

Empowered Committee chief Sushil Kumar Modi praises Chidambaram for giving a push to ongoing drive

Bihar deputy chief minister and empowered committee chairman on goods and services tax (GST) Sushil Kumar Modi on Monday made a strong case for the protection of a financial autonomy of states and providing certain incentives to them to shift to GST regime. Besides, Modi, who held deliberations here with the industry representatives organised by FICCI, said states are quite keen to protect their revenues and guarding the interests of the small traders when shifted to GST regime. Modi mentioned that incentives have been provided by Singapore and Canada to states there and on that lines the Central government can consider in the country to incentive states to shift to GST. He noted that GST seeks to create a common market for goods and services in the country.

States however, want clarity on revenue neutral rate, threshold revenue limit and dual control, Modi said.  “Already three sub committees have been formed to make recommendations in this regard and we expect reports during next meeting of the empowered committee slated for May 10 & 11 at Mussoorie. States have pitched for a tax rate which will ensure that there is no loss in revenue during transition to GST. Further, states have their own views on dual control where in they are quite worried that small traders may have to bear additional compliance cost in the wake of says of central and state government .”

Moreover, Modi said the subcommittee will make recommendation on a threshold revenue limit beyond which traders will have to pay GST. In the past, the empowered committee had thought of a threshold limit of Rs 10 lakh but considering inflation and other factors it needs to be further reworked.

Regarding the concerns raised by states on the possible revenue loss, Modi said Maharashtra is quite worried over loss in revenue from the Octroi duty while Punjab and Harayana about purchase tax loss. On the other hand, Bihar is concerned over entry tax loss. “I frankly feel there is no politics but states certainly are concerned about protection of their revenues,” he observed.

Modi admitted that the Centre and states have agreed on the compensation to given after the introduction of GST regime for at least five years. “I must say after P Chidambaram has become finance minister again he has given a push to launch GST. He held interactions with the empowered committee and subsequently the standoff between states and Centre on compensation has been resolved,” he noted.

Modi however, emphasised the need for a passage of the GST Bill as it needs a two third majority in the Parliament. “The parliamentary standing committee on finance is expected to submit its report soon on the GST Bill. Then it is up to the Central government to seek its passage in such a fractured majority. Ones the bill is passed with two third majority 50% of state assemblies will have to ratify it. Therefore, I cannot say when the actual introduction of GST will happen,” he opined.

On an option by states not to join GST regime, Modi admitted that such an option was available earlier but it has not been withdrawn. “All states will have to be part of GST regime and all attempts are being made to arrive at a consensus,” he added.