Finance ministry has moved to address unresolved issues. Why does a roll-out still seem distant?

Will Finance Minister P. Chidambaram have adequate time to push through the Goods and Services Tax (GST) before the general election? The answer to this question will determine whether the two groups set up by the empowered committee of state finance ministers last week can be expected to make any reasonable progress soon. The issues these committees will be addressing have been hanging fire for several years. The disputes are over the extent of the compensation that should be given to state governments for replacing the Central sales tax levied on the inter-state movement of goods, and whether there should be a dispute settlement authority to resolve tax disputes between governments. In the run-up to the nationwide value added tax, the empowered committee was able to resolve all fractious issues. The setting up of the two sub-committees now shows that the consensual approach may not have worked. A key reason for this is the gradual erosion of commitment, on the part of the states and the Centre, to roll out the GST within an acceptable time-frame.

Acknowledging the states’ grouse that their compensation has dried up since 2010-11, the finance minister has linked further payments to the setting up of a time-table for the GST roll-out. Whether this will work largely determines the subsequent step — the passage of a constitution amendment bill to allow the states to tax services and for the Centre to tax goods at the retail level. Despite these steps, however, it is still difficult to envisage how the GST can become operational by April 2013. Issues like the taxation of petroleum products are still pending. Since these products account for a sizeable percentage of the total excise collections, leaving them for resolution at a later stage will significantly curtail the benefits of the GST roll-out.

The issues surrounding the disputes settlement authority are more about perceptions. States think the solution cripples their sovereign rights, but it is impossible to envisage a GST structure where each dispute can be solved only through the regular judicial process. Hopefully, as the other issues are addressed, the concerns on this score, too, will be eased.