Basic structure ready, but procedural issues haunt

Goods and services tax (GST) is unlikely to come into being for at least two years. For it to become reality, the assemblies of at least half the states need to ratify it after Parliament amends the constitution to usher in the tax. The tax has been work in progress for almost seven years.

A finance ministry official told Financial Chronicle that getting the amendment ratified by at least half the states would take time, and “GST may not be rolled out till at least 2015-16.”

Though the basic structure of GST is likely to be ready by Thursday, other issues need resolution, for which three panels have been set up. They will grapple with the following among six ‘procedural’ issues: revenue neutral GST rate, integrated GST and dual authority (the centre and states). Their reports are expected in three months.

Finance minister P Chidambaram will meet the empowered group of finance ministers on Thursday. He will separately meet Sushil Kumar Modi, chairman of the empowered group and Bihar’s deputy chief minister.

Chidambaram recently told the group that he would bring in GST ‘even if there was consensus (only) six days ahead of budget.’

Modi told Financial Chronicle from Patna that Chidambaram wanted a commitment from states on GST before making a concrete announcement in his budget.”

States want Rs 34,000 crore as compensation for the revenue they fear they will lose as a result of GST. According to Modi, the centre has conceded this.

The ministry official claimed most areas of divergence between the centre and states had been narrowed. For instance, whose authority should prevail is a big issue. States have been reluctant to give up their authority (which they now exercise through state sales taxes) after GST replaces both state and central sales tax.

To end this logjam a threshold of Rs 3 crore is being considered as the dividing line between where the centre comes in and where the states do in the matter of tax assessment.

States’ stand is that all GST assessments, barring ‘a few big-ticket cases,’ must be under their purview in the ‘true federal spirit.’ The relevant panel will decide on the cut-off limit.

Pending the resolution of the six issues, Chidambaram may just clear the air regarding GST in his budget speech and then prepare the ground for its adoption in Parliament in the following three months.

After Thursday’s meeting he may suggest some changes in the GST bill to the parliamentary standing committee on finance headed by Yashwant Sinha.

Last month in Bhubaneshwar, the empowered group of ministers met and agreed on the ‘design’ of GST with freedom to states to decide on the timing of introducing it. They also wanted the freedom to opt out of GST, thus making it optional.