Prime Minister Manmohan Singh on Saturday asked states to embrace the Goods and Services Tax(GST) from the next fiscal, saying replacement of most indirect taxes by this will help in greater revenue mop up.
The Centre earlier this week proposed three different rates — 20 per cent for goods, 16 per cent for services and 12 per cent for essential items — under GST.
“Reform of tax structure and tax administration isanother important step in resource mobilisation. The GST is especially important in this context and I would urge Chief Ministers to give full support to the effort to implement GST with effect from April 1, 2011,” Singh said at the National Development Council (NDC).
The GST would replace excise and service tax at the central level and VAT at the state-level.
The PM’s statement comes at a time when doubts have been voiced by many NDA-ruled states over the implementation of the GST from April one, 2011. The introduction of new indirect tax regime has already been delayed by a year due to differences among the states and the Centre.
Most chief ministers were present at the NDC meeting called to review the progress of the 11th five-year Plan.
The introduction of GST would need constitutional amendments, which is required to be passed with two-thirds majority in both houses of Parliament, and ratification through a simple majority by at least half of the state assemblies.
As such, the support of chief ministers is crucial for radical reforms.
If all members of Parliament vote in the Constitutional amendments bill, 362 members of the Lok Sabha and 161 MPs of Rajya Sabha will have to vote in favour of the bill to pass it.
Therefore, the support of the main opposition BJP is required for the passage of the Bill in Parliament.
Earlier this week, Finance Minister Pranab Mukherjee had reminded the BJP that its election manifesto during last Lok Sabha elections had promised to implement GST, if the NDA comes to power.
The Centre expects to table Constitutional amendments bill in Parliament in the monsoon session that begins Monday.
However, the draft of the bill prepared by the Centre is still being studied by states and they will meet on August 4 to discuss the issue.
Mukherjee had said that introduction of the GST would help double the size of India’s economy to USD 2 trillion in a short span of time.
He had also assured the states that he is willing to go beyond the 13th Finance Commission’s recommendations of Rs 50,000 crore compensation to states.