Finance minister Pranab Mukherjee met state finance ministers on Thursday to discuss broad fiscal measures and the preparedness to roll out a nationwide goods and services tax (GST) but a consensus eluded a few thorny issues, including the levy rate and the implementation schedule.
“We need to focus on the introduction of GST from April 1, 2010. This is a critical part of our economic reforms,” Mukherjee told the finance ministers.
Discussions have hitroadblocks, with some states including Gujarat, Madhya Pradesh and Chhattisgarh voicing concern that the information technology system and administrative infrastructure were not ready for a rollout by April next year.
A source involved in the discussions, who did not wish to identified, said the negotiations were also stuck on the GST rate. At present, there are three major rates of indirect taxes--- service tax of 10 per cent, Cenvat (central excise) rate of 8 per cent and a VAT rate of 12.5 per cent.
“The GST rate has to be the median of these rates. So far, there has been no unanimity on the rate,” said the source.
An “empowered committee” of state finance ministers headed by West Bengal finance minister Asim Dasgupta is planning to finalise the rate by August, giving state assemblies sufficient time to pass the necessary legislations.
“It can pave the way for modernisation of tax administration - make it simpler and more transparent – and significant enhancement in voluntary compliance,” said Satya Poddar Tax Partner, Policy Advisory Group, Ernst & Young.
The state governments, which fear revenue losses from the GST implementation, also want the Central exchequer to foot half of the bill for salary arrears resulting from Pay Commission recommendations and sought a relaxation on fiscal consolidation targets in wake of the current economic downturn and high public expenditure.