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Finance Ministry unlikely to agree to changes in GST structure

business Updated: Oct 31, 2010 16:21 IST

The Finance Ministry is unlikely to bow to the Empowered Committee of State Finance Ministers' demand for altering the basic structure of the proposed Goods and Services Tax to make the new indirect tax regime more acceptable to states.

"Any changes in the basic structure in GST would not be acceptable to the Centre. The functioning of Dispute Settlement Body and GST Council is at the core of the GST structure," a Finance Ministry official said.

The Centre has framed a draft Constitution Amendment Bill for roll-out of GST. However, state finance ministers have railed against the inclusion of provisions for setting up a Goods and Services Tax (GST) Council, with the Union Finance Minister as the chairman, to take collective decisions on the state subject of indirect taxes.

Furthermore, the proposed Dispute Settlement Body for resolution of GST disputes has also not found any consensus between the Centre and states. However, it seems that the Centre is not inclined to shelve these proposals. The official said it was necessary to pass the Constitution Amendment Bill for implementation of GST, which will subsume various indirect taxes like excise, service tax and sales tax.

"Whatever Constitution Amendment is required should be made fully, as there is no point in going for half-baked reforms," the official added. A Constitution Amendment is required because in the current scheme of things, the Centre cannot impose tax beyond manufacturing and states cannot levy service tax.

According to tax consultant Prashant Deshpande, who is Deloitte's indirect tax expert, "Dropping of GST Council and the common Dispute Resolution Settlement body would mean eliminating two important pillars of a unified and harmonious GST system." The roll-out of GST, which will subsume excise duty and service tax at the central level and VAT on the state front, besides local levies, has been hanging fire ever since it missed an initial deadline of April 1, 2010.

Subsequently, the Finance Ministry had fixed April 1, 2011, as the new deadline for implementation of GST, but this is also likely to be missed. The Centre now says GST may be rolled out sometime in the next financial year. Meanwhile, many BJP-ruled states and Uttar Pradesh continue to oppose GST in its present form.

"First, there has to be a structure of GST. There is no consensus on many things like threshold, purchase tax, rates, etc," Madhya Pradesh Finance Minister Raghavji said.