The empowered committee of state finance ministers wants the central government to specify the compensation that state governments will receive in lieu of the revenue they will forego on account of the proposed goods and services tax (GST).
“Currently the states want a compensation package for five years after the adoption of GST and the government has, till now, only assured of such a package but not given a final commitment; 90% of the issues will be solved if government gives a final word on the compensation package,” the committee’s chairman and Bihar finance minister Sushil Kumar Modi said.
Modi, who was speaking at an interactive session organized by the Federation of Indian Chambers of Commerce and Industry (Ficci) in Mumbai, declined to specify a deadline for the GST rollout, citing differences that needed to be sorted out between the central and state governments. “The ball is now in the court of the (central) government,” Modi said.
Mint had reported on 18 April that in an effort to expedite the roll-out of GST, a much-awaited tax reform that’s aimed at removing all barriers across states, finance minister P. Chidambaram was pushing the states to finalize the architecture by next month and was willing to offer some more fiscal concessions to the states to manage a consensus.
The two key elements of the architecture that need to be finalized are the revenue-neutral rate that will ensure no loss of tax revenue for the states and the threshold at which the GST levy will kick in.
GST is an indirect tax that will replace existing taxes such as excise duty, service tax and value-added tax (VAT). The states and the union government will impose the tax on almost all goods and services produced in India or imported. Exports will not attract GST.
Chidambaram has assured states that the government will make provisions in this year’s budget to provide for central sales tax compensation. Because of fiscal constraints the payment will be staggered, with a provision being made this year for the dues of 2010-11.
The finance minister said in case of a further delay in GST roll-out, states will be provided adequate compensation for revenue foregone. States have asked that either they be paid full compensation from the fiscal year starting 1 April 2013 or the central sales tax rate be restored to 4% (it is now 2%).
Modi also said on Monday that the empowered committee of state finance ministers wants to bring petroleum products under the ambit of the proposed GST.
“The general consensus is that we should not keep petroleum products outside GST,” Modi said.
Presently, GST does not cover goods such as crude oil, diesel, petrol and alcohol because these products are major sources of revenue for most state governments.