Centre to include GST compensation in Constitutional Bill

Finance Ministry has floated a draft Cabinet note on GST for inter ministerial consultations

The Centre has agreed to include compensation to be paid to states for Goods and Services Tax (GST) roll-out as part of the Constitution Amendment Bill.

“The compensation structure would form a part of the Bill. It will be paid in tranches to the states,” an official said. A consensus on this crucial issue will make it easier of the Centre to introduce the GST Bill in the winter session of Parliament beginning November 24.

The official further said that the finance ministry has floated a draft Cabinet note on the GST for inter-ministerial consultations.

“The first tranche of compensation to states will be made available in the upcoming session,” the official added.

However, the official added that further discussions would be needed on revenue-neutral GST rate and threshold limit for imposing the levy.

As regards taxation of petroleum products, the Centre has proposed to the states that it be made part of the GST Bill.

The states, he said, would get six months to vet the GST Bill in the Assemblies after its passage by Parliament.

While a sub-committee on GST has suggested that the revenue-neutral rate of GST be pegged at about 27 per cent, the states are yet to decide on it. It had suggested states GST at 13.91 per cent and central GST at 12.77 per cent.

Differences remain on threshold limit for levying GST with states demanding that annual turnover for imposing the levy be Rs 10 lakh and Centre demanding it to be at Rs 25 lakh.

The GST will subsume indirect taxes like excise duty and service tax at the central level and VAT on the states front, besides local levies.

The GST Constitution Amendment Bill, which was introduced in the Lok Sabha in 2011, had lapsed and the NDA government will be required to come up with a fresh Bill.

States have been demanding that petroleum, alcohol and tobacco should be kept out of the purview of GST.

As regards the items exempted from the purview of GST, the Empowered Committee suggested that they should be mentioned in the Constitutional Amendment Bill.

The Centre is planning to provide Rs 13,000 crore on account of Central Sales Tax (CST) compensation to states for dues till March 2010 and is likely to seek Parliament nod for the same.