Participating in the meeting of the Empowered Committee of State Finance Ministers convened by Union Finance Minister Arun Jaitley in Delhi on Tuesday, Chief Minister V. Narayanasamy made a case for both granting of special status under the new Goods and Services Tax (GST) regime and a Constitutional amendment to bring Puducherry under the purview of the Central Finance Commission.
Mr. Narayanasamy sought to draw attention to the peculiar plight of Puducherry, which was also not under the purview of the Finance Commission given its status as a Union territory with a legislature. He also highlighted its other handicaps such as small size, disadvantageous location and discontiguous enclaves.
Pointing out that the UT was a consumption-driven economy without natural resources or raw materials, he said it would suffer a major loss of revenue under the proposed GST. Hence, he urged the committee to recommend to the Union Government that the UT be covered under sub-clause (g) of clause (4) of Article 279A, under which North East States and others enjoy the benefits of special provisions.
‘Not getting its due share’
The Chief Minister pointed out that Puducherry had opened a ‘Public Account’ in 2007 and since then has been treated at par with other States for all practical purposes, except for the distribution of Central taxes and duties under Article 270 of the Constitution and devolution of funds under Article 280.
The UT had been pressing for bringing union territories with legislatures under the provisions of Articles 270 and 280 so that they could get their due share from the Centre as also the GST compensation.
The other issue the Chief Minister flagged was the feared loss of revenue under GST in the likelihood of the State GST rate being fixed lower than the estimated Revenue Neutral Rate (RNR) for Puducherry, which was estimated to be higher than the national average.
Loss of revenue
“With the implementation of the GST, the Union Territory is set to lose GST revenue of nearly Rs. 300 crore hitherto available,” Mr. Narayanasamy said.
A lower State Goods and Services Tax (SGST) rate, on the other hand, would further compound revenue loss. He requested that due deliberations may be made in the Committee and the RNR be finalised without affecting the revenue of the UT.
Pointing out that clause 19 of the Constitution Amendment Bill provided for payment of compensation to States on account of the GST rollout, Mr. Narayanasamy sought suitable amendments to make it mandatory for payment of compensation for full five years to the States and thereafter.
He also wanted the threshold for dealer registration under VAT be retained at Rs. 9 lakh annual turnover as proposed in the model GST law, as yielding to the demand of some States to enhance the limit would erode the tax base of the UT.