Goods and services tax (GST), one of the key reform moves of UPA, appears to be in serious jeopardy, with the biggest change in tax regime now expected to be ushered in only by the next government.
Sources said the two committees set up to look at the contentious issues of compensation to states for loss of revenue on account of central sales tax (CST) and the final design of GST were originally expected to submit their reports by December 31 but now the deadline has again been extended till January 21 – leaving the finance ministry with little time to consider the recommendations and discuss them with the state finance ministers before the budget.
In any case, by seeking a review of the final design itself, the finance ministry may have to make major changes to the constitutional amendment bill and the standing committee headed by former finance minister Yashwant Sinha is unlikely to let the government get away without having a second look at the new provisions. Even in the Banking Laws (Amendment) Bill, the government had to withdraw amendments it introduced after the standing committee approved the “original bill”.
After the constitutional amendments are approved, the government has to introduce another bill to provide for a GST law, which is again unlikely.
That will leave the Centre with a very short window to introduce the new tax regime from April 1, as it had planned. And with the February 28 budget likely to be the last full-fledged financial exercise by the government, it is unlikely that GST can debut anytime before April 2015. Already, GST is almost three years late since April 2010 was the original deadline.
For several months now, the government has billed GST and the Direct Taxes Code as top priority items and after P Chidambaram returned to the finance ministry on September 1, there seemed to be a fresh attempt to push for the two legislations, albeit in a form that is different from what his predecessor Pranab Mukherjee had in mind.
As a result, Chidambaram has tasked his officers to look at four versions of DTC – the report that he had drafted, the amended draft, the bill and the recommendations of the standing committee.
In case of GST, while BJP-ruled states are not on board on the design, compensation for loss of CST has proved to be a major bone of contention on which the Centre has changed its stance. Before demitting office, Mukherjee had cleared the states’ demand for Rs 20,000-crore compensation but there has been no progress on it after he left the finance ministry in June. Support from the states is crucial at every stage since at least half the state legislatures will have to clear the constitutional amendments.