The Centre and states were locked in hectic confabulations on Thursday, to iron out thorny issues including compensation for at least five years, to offset potential revenue losses after the nation-wide goods and services tax (GST) is rolled out.
A small group of five state finance ministers met union finance minister Arun Jaitley on Thursday evening in a fresh attempt to hammer a consensus on the new indirect tax structure.
Another round of consultations will be held shortly, said Abdul Rahim Rather, chairman of empowered committee of state finance ministers, after the meeting.
Once implemented, GST will stitch together a common national market by subsuming a welter of local levies such as octoroi, value-added tax (VAT) and others into a single tax. Its implementation has faced political hurdles because states fear it will rob them of fiscal powers.
Earlier in the day, states had rejected the draft Goods and Services Tax (GST) Constitution Amendment Bill saying it does not address their concerns, particularly on entry tax and taxation of petroleum products.
States have insisted on keeping petroleum products outside the ambit of GST.
“Many states earn almost 50% of their revenues from taxes on petroleum products. Keeping petroleum outside GST will seriously dent their fiscal situation,” Rather said.
“There is no consensus between the Centre and states on these three things (compensation issue, petrol tax and entry tax). The empowered committee is not supporting the Bill without these,” Rather said.
States want the details of the compensation mechanism to be clearly specified in the Constitution Amendment Bill.
The Centre has been reassuring states that it will respect their views and if need be compensate them for any revenue loss. However, the Centre feels that GST will translate into a benefit for the states, so the question of compensating them was not likely to rise.
States have been asking the Centre that the share of government in GST should go to the divisible pool and should devolve among states, to which the central government has agreed.
The GST rate on various states will likely be decided by a council of finance ministers after the Centre and states agree on the structure and details of the Bill. Rather said that the draft of the new Constitutional Amendment Bill, which was received by the Committee earlier in the month, did not take on board the suggestions of the state finance ministers.
Rather welcomed the decision of the Centre to release Rs 11,000 crore to states as part of compensation towards the central sales tax (CST) this financial year.
The government plans to introduce the Bill in Parliament’s ongoing Winter Session and hopes to roll out the new regime, billed as India’s biggest tax reform initiative, by April 2016.
The Centre had disbursed Rs 6,000 crore in 2011 and another Rs 9,000 crore had been provided in 2013, but the states have been claiming compensation for 2011-12, 2012-13, and now 2013-14.