The prospects of early roll out of goods and services tax (GST) brightened with the states and the Centre making progress on a crucial legislation, amid indications that the states may get concessions to tide over possible demonetisation-related revenue loss.
On Thursday, the first day of the two-day meeting of the GST Council, consensus was reached on most of the clauses of Central GST law. Out of 193 clauses, only those related to dual control are left, sources said after the meeting.
Those tracking GST closely saw it as a significant development given that the last Council meeting had to be called off after the first day , amid strong criticism from states led by West Bengal over the Centre’s demonetisation drive. West Bengal has been at the forefront of protests against demonetisation of Rs 500 and Rs 1,000 notes with its finance minister Amit Mitra arguing that state revenue had been hit hard and could come under further pressure after GST rollout.
Mitra played down suggestions that significant headway was made. “There were many suggestions from across states and across political parties on GST draft laws and the Centre had to accept many of the suggestions. Several items on the draft law had to be kept in the backburner. The issues will be studied and it was decided that they will be discussed in the January meeting. The studies will be presented before the GST Council for further discussion. Therefore the GST draft laws have yet not been concluded,” Mitra said.
Mitra said states also want a say in IGST (Integrated GST). “It is critical for the sake of federalism and operational success for states to have cross empowerment in inter-state trade. This matter was not even discussed today .”
The Bengal FM said the Centre may have to find additional resources to help states meet any revenue loss due to demonetisation. “Many states across political parties are deeply concerned that their tax collection is going to drastically fall and as a result the compensation from the Centre will have to exceed the Rs 55,000 crore planned earlier. The question is cesses cater to such a large need of the expected compensation and therefore the Centre will have to find additional resources to fund the requirement due to demonetisation.”
The Centre is indicating that it is willing to look at some of the measures to help states tide over the temporary disruption. The most contentious issue of dual control is expected to be discussed in January .
State government sources said there were also concerns over some of the proposals related to the compensation formula suggested by the Centre, which has promised to cover potential losses during the first five years of rollout.
Sources said the GST Council may also look at some of the issues related to the financial services sector. Several service sector entities have been pitching for a centralised registration instead of registering in every state.