Manufacturing States will be net gainers under GST, says Jaitley

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NEW DELHI, JUNE 19:  Finance Minister Arun Jaitley feels that the fears of manufacturing States such as Tamil Nadu, Maharashtra and Karnataka regarding revenue implications for their exchequer as a fallout of the Goods & Services Tax (GST) are overstated.

“Manufacturing States, which believe that a destination tax will reduce their taxes, are also the ones that will gain the maximum out of service tax. So, when you net total it, I think the fear is a little overstated,” Jaitley said.

Words of reassurance

In an interview with BusinessLine, he said: “Tamil Nadu has had a conventional position that as a manufacturing State, its interests should be protected. And we (the Central government) are committed to that. The very fact that for five years, we will underwrite all the losses is a protection. I think Tamil Nadu’s interests will be substantially taken care of.”

Jaitley’s comments should reassure the Tamil Nadu government, which has expressed concern about the impact of the proposed GST on the fiscal autonomy of States. In fact, Tamil Nadu Chief Minister J Jayalalithaa, at a recent meeting with Prime Minister Narendra Modi, had said that GST would lead to a permanent revenue loss for “manufacturing and net exporting States like Tamil Nadu.”

Numbers favour GST

Aware that the support of other parties in the Rajya Sabha — where the BJP lacks a majority — is crucial for the Constitution Amendment Bill on GST to sail through, Jaitley said: “I have no doubt that the numbers are on the side of GST.”

As regards the main Opposition party, the Congress, he said, “The party needs to reconsider its position on some of its conditions. It was not its position when it introduced the Bill; these are just add-ons as a Parliamentary tactic.”

“I will certainly try my best to mobilise (support). I am meeting leaders of various political parties. Even with the Congress, I will continue the dialogue. Either the Congress supports it or it allows a vote on it,” he stated.

Even as Jaitley and his team are looking to win over those still opposed to GST, the latest statement of support from Kerala Finance Minister Thomas Isaac, at variance with the Left’s stance, could come as a booster.

Meanwhile, a member of the Empowered Committee of State Finance Ministers said that at the most recent meeting, Tamil Nadu had not been as vehement in its opposition to GST as it had earlier been.

In a statement, Tamil Nadu Minister for Commercial Taxes KC Veeramani, who represented the State, did not oppose GST, but raised certain issues that were common to other States as well, the member said.

“Two key issues were raised by the States. The first was the wide variation in the revenue-neutral rates (the rate at which there will be no profit or loss to the State) proposed by the Chief Economic Advisor and the National Institute for Public Finance and Policy (NIPFP). The second pertained to the threshold limit for dual control or the business turnover at which GST will be levied by both the Centre and the State,” the member said.

While the Chief Economic Advisor has suggested a revenue-neutral rate of 15-15.5 per cent, the NIPFP has proposed a rate of 27 per cent.

With the government keen to push GST in the upcoming session of Parliament expected in July, the Empowered Committee is likely to meet two-three times in quick succession. The CEA and the NIPFP are expected to make presentations to the panel.

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