States oppose central veto on GST; may miss deadline again

The introduction of Goods and Services Tax (GST) is running the risk of missing another deadline, with several states giving a thumbs-down to the draft Constitutional Amendment Bill prepared by the Centre.

States ruled by political parties other than the Congress came out openly against the proposal to give veto powers to the Union finance minister. While the Congress-ruled states refrained from publicly opposing the proposal, finance ministry officials conceded that even some of these states had reservations.

The empowered committee of state finance ministers, which discussed the draft Bill today, also opposed its other elements, such as setting up a disputes settlement authority under the Constitution and taking away fiscal autonomy of the states to lower or increase taxes. The states have sought more time to seek legal opinion on the draft Constitutional Amendment Bill. They are willing to accept the Bill's provisions to place the power to levy the tax in the Concurrent List.

 

“States are in-principle in favour of introduction of GST in an appropriate form, but they are against any infringement on their financial autonomy. The proposed draft in its present form is not acceptable to the states. They have some reservations on the Bill's provisions for the GST Council and the GST Disputes Authority,” Empowered Group Chairman and West Bengal Finance Minister Asim Dasgupta said.

States have reservations about the Union finance minister having veto power on state GST, but they do not have any issues in giving him exclusive authority on central GST. On the Centre’s proposal to give Constitutional backing to the GST Disputes Authority, the states said it should rather find a place in the GST legislation. The Authority, with three members recommended by the GST Council and approved by the Chief Justice of India, will ensure that states do not deviate from the agreed principles of GST.

“Forming the GST Council and its recognition as a separate autonomous body is crucial to the success of GST. The current GST Council proposals envisage that any change in tax rates shall have to be approved by a two-third majority to ensure that there are no distortions in the GST. Given that two-third majority will reflect the collective wisdom of the states, the issue of veto power with the Union finance minister need not be pressed if it acts as a hurdle,” said Prashant Deshpande, leader for indirect taxes at consulting firm, Deloitte.

The demand of states for more time to review the draft Bill could delay its introduction in Parliament. The finance ministry was planning to table it by August 20, but it seems difficult now, as most states want about one month to get legal opinion on the Bill.

DIVIDED COLOURS OF GST

BJP-RULED STATES

It is impossible to introduce GST from April next year
RAGHAVJI
Madhya Pradesh FM

States are left with no powers in the proposed draft
SAURABH PATEL
Gujarat FM

NON-CONGRESS & NON-BJP STATES

Veto power is not acceptable; Head should be rotated
MANPREET SINGH BADAL
Punjab FM

Veto is not okay, there should be a vice chairman from the states
THOMAS ISAAC
Kerala FM

CONGRESS-RULED STATES

More or less Congress-led states have a consensus
AK WALIA
Delhi FM

Veto power not opposed, we just want full compensation
AJAY SINGH YADAV
Haryana FM

The differences between the Centre and states over GST structure have already delayed its introduction by a year.

GST is now proposed to be introduced from April 2011. Congress-led states said they are largely on board, barring a few changes in the Constitutional Amendment Bill. Some BJP-ruled states, however, expressed doubts whether GST could be introduced in the next financial year.

“Majority of the states, including those ruled by BJP, Uttar Pradesh, Tamil Nadu, Orissa, as well as some others, are against the proposed veto power,” said Madhya Pradesh Finance Minister Raghavji. “In the present form, the Constitutional Amendment Bill will not come in the monsoon session,” said Gujarat Finance Minister Saurabh Patel. Bihar Deputy Chief Minister Sushil Modi said the April deadline looked difficult.

Asked whether the states’ opposition would delay GST rollout, Dasgupta said, “We are not (saying that). We are only saying GST amendment bill should be retained in a proper manner, and taken together, officials of the Union and states can do a very quick job. There should be an attempt made wholeheartedly.” Another discussion paper on GST may be circulated soon, he added.