Consensus with states imminent on Goods and Services Tax

Finance Minister Arun Jaitley reached a consensus with the Empowered Committee (EC) of State Finance Ministers on the proposed Goods and Services Tax (GST) in a meeting here late Monday.

A senior finance ministry source told IANS Tuesday that the details of the agreement are being fine-tuned so as to enable Jaitley to table the constitutional amendment bill in the ongoing session of parliament.

"The discussions are moving in a positive direction," Jammu and Kashmir Finance Minister Abdul Rahim Rather, who is the chairman of the Empowered Committee, told reporters after the meeting.

Along with Rather, the other finance ministers were from Punjab, Haryana, Gujarat, Tamil Nadu, Maharashtra and Karnataka.

"This week, I'm trying my best to get an agreement with state finance ministers so that we can introduce the discussion on the amendments (on GST Bill) in this session," Jaitley said at the Agenda Aaj Tak event here Friday.

Earlier, the seven states' finance ministers in a meeting here Thursday rejected the draft Goods and Services Tax (GST) Bill, saying it does not address their concerns on the issues of compensation, entry tax, and the tax on petroleum products.

Jaitley told parliament Wednesday that states will receive Rs.11,000 crore this fiscal towards partial compensation of the losses suffered by them for reduction in central sales tax (CST).

He earlier told parliament that he has already assured states that the Centre would clear their compensation dues of about Rs.34,000 crore ($5.5 billion) over a three-year period.

While the CST is levied by the Centre on inter-state movement of goods and collected by states, the issue of compensation arose because the central government cut the CST from 4 percent to 2 percent in phases, after state-level VAT was introduced from April 1, 2005.

States also want petroleum, alcohol and tobacco to be kept out of the purview of the GST.

Seen as a key to facilitating industrial growth and improving the business climate in the country, the GST bill needs to be passed by a two-thirds majority in both houses of parliament and by the legislatures of half of the 29 states to become a law.

By subsuming most indirect taxes levied by the central and state governments such as excise duty, service tax, VAT and sales tax, GST proposes to facilitate a common market across the country, leading to economies of scale and reducing inflation through an efficient supply chain.

Full implementation of GST could lift India's gross domestic product (GDP) growth by 0.9-1.7 percentage points, according to a study by the National Council of Applied Economic Research (NCAER).