GST Bill incentivises states under proposed regime: Government

To help states in the transition phase of implementing the Goods and Services Tax, the government has proposed levy of an additional tax on inter-state trade on goods of up to one percent and kept out petroleum products from its purview till later, parliament was told on Tuesday.

Besides, the Constitution (122nd Amendment) Bill, 2014 tabled in the Lok Sabha proposes that compensation to the states for loss of revenue owing to GST may be extended to five years, Finance Minister Arun Jaitley told the Rajya Sabha in a written reply.

"Levy of an additional tax of goods, not exceeding one percent in the course of inter-state trade or commerce to be collected by the government of India for a period of two years, and assigned to the states from where the supply originates," he said

In the case of petroleum and petroleum products, it has been provided that these goods will not be subject to the GST levy till a date notified on the recommendation of the Goods and Service Tax Council, he added.

Moving the bill in the Lok Sabha last month, Jaitley said it was a win-win situation for both the states and the centre.

"At the moment, the states do not get any shares of service tax. It entirely goes to the centre. But under the new regime, states will also get a share of services tax," Jaitley said.

The finance minister also said every decision in terms of levies under the tax will have to be ratified by 70 percent majority of a new council proposed in the amended bill, adding this will prove to be a much-desired example of cooperative federalism.

For the constitution to be amended, it needs two-thirds majority in both houses of parliament and then its ratification by at least 15 state legislatures. It will then be sent to the president for his assent.

Once this far-reaching amendment is carried out, India will have a new goods and services tax regime that will do away with central indirect taxes such as excise duty, countervailing duty, and serice tax, as also state levies such as value added tax, octroi, and luxury tax.

The tax, thus, collected will be divided between the central government and states on the basis of formulae approved by parliament, based on the recommendations of a GST council to be set up under the new statute.

The union cabinet has recently approved the payment of compensation to states for the loss they would incur on account of a reduction in the central sales tax from 4 percent to 2 percent for three years from fiscal 2010-11.

Finance ministry sources said preliminary estimates indicate that Rs.33,000 crore could be the amount payable to states and union territories for the entire period, and settling these claims will help create an enabling environment for rollout of the new regime.