Two committees to be formed to sort out GST issues: FM

Finance Minister P Chidambaram today announced the setting up of two sub-committees to sort out the contentious issues of compensation to states for  loss of revenue on account of central sales tax (CST) and the final design of the Goods and Services Tax (GST). The two committees will work simultaneously and submit their report by December 31, after which the Empowered Committee of State Finance Ministers on GST will discuss the recommendations.

“We had a very free and frank discussion on GST following which it was clear that two issues are still need to resolved one is compensation for loss of CST and the design of GST,” finance minister P Chidambaram told reporters. Chidambaram who met the Empowered Committee on GST for the first time after taking over as Finance Minister in August said that though there was a broad consensus on GST, but some issue had to be sorted out.

“The two committees will be initially headed by senior officials from state government and nominee of the central government and after the reports are prepared, ministers will join the panel,” he said. After the two sub-committees  finalise their reports, it will be submitted to union Finance Ministry and thereafter discussed threadbare by the Empowered Committee of State Finance Ministers on GST sometime in January .

"The two committees would streamline the CST compensation issues for 2011-12 and also give suggestions on the design framework including exemption and threshold limit," Sushil Modi, chairman of Empowered Committee on GST told PTI. The union Revenue Secretary would head both the committees.     

“We (states) had serious concerns over the fiscal autonomy of states as and when the GST is implemented, which will now be looked after the two sub-committees,” Madhya Pradesh finance minister Raghavji told reporters after the meeting. He said some states including Madhya Pradesh were of the view that Central government should not claim its share in sales tax, tax rates should be determined by the states and they should also be allowed to administer the same.

GST, which will empower the Centre and states to simultaneously tax supply of goods and services, was to be introduced from April 2010 and has missed several deadlines. The Bill is currently being vetted by the Parliamentary Standing Committee on Finance. The committee had raised certain queries to which the revenue department has already responded. The report of the committee is awaited.

Chidambaram had earlier exuded confidence that the Centre will be able to resolve all issues concerning GST so that the new indirect tax regime could be rolled out from April 2013. CST is collected by the Centre and distributed among states. As a precursor to GST, Centre and States in April, 2007, had agreed to phase out CST over a period of three years and in line CST rate was reduced to 3% and then to 2%.

The Centre had already compensated states for losses up to 2010-11. “The first compensation was paid for two years and part of it was paid in the third year,” Chidambaram said. As the Centre refused to go on compensating the states for delay in implementation of GST, states had argued that when it was decided to phase out CST, it was presumed GST would be implemented from April, 2010.

“Any decision on GST roll out will happen only when the two committees give their final report and the State Finance Minister’s agree to it,” Raghavji said.