States to get 1-year grace period for implementing GST

States will get one-year time to implement the provisions of Goods and Services Tax (GST) after introduction of the new indirect tax regime from April 2016.
With states like Tamil Nadu and West Bengal still voicing their concerns over GST implementation, the Centre has provided for this one-year extension clause in the GST Constitutional Amendment Bill which was tabled in the Lok Sabha on December 19.
Touted as the single biggest indirect taxation reform since independence, the GST implementation would create a single tax for goods and services across the country.
"The one-year grace period is only a transitory provision and all states will have to finally implement it. States are on board," a senior official said.

This would "take care of any inconsistency which may arise with respect to any law relating to tax on goods or services or on both in force in any State on the commencement of the provisions of the Act".
A single rate GST will replace central excise, state VAT, entertainment tax, octroi, entry tax, luxury tax and purchase tax on goods and services to ensure seamless transfer.

Some states have opposed introduction of the GST Bill without evolving a consensus on critical aspects like revenue neutral rates and bands, compensation methodology and thresholds.
Gujarat has proposed that the one per cent additional tax that manufacturing states can charge on inter-state trade for two years after GST roll out should not be withdrawn.

West Bengal is also learnt to have raised demand for full one time payment of CST compensation and as well the losses likely to accrue due to abolition of entry tax.
As per the Constitutional Amendment Bill, liquor has been completely kept out of the GST. Petroleum products like petrol and diesel will be part of the new regime from a date to be decided at a future date by the GST Council, which will have two-third of its members from states.
Also the states where goods originate can levy 1 per cent additional tax over GST to make up for any revenue loss for the first two years.

As regards the compensation to the states on account of any possible loss of revenue following implementation of the GST, Centre will pay 100 per cent compensation in the first three years, 75 per cent in the fourth year and 50 per cent in the fifth year.