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New states formula to end GST deadlock

With no consensus in sight for a model to implement the goods and services tax, state governments have presented a modified version of the proposed regime that would enable states to enjoy discretionary fiscal powers without requiring Constitutional amendments on the road to the new tax framework. Giant leap in taxation

business Updated: Sep 23, 2010 01:55 IST
Gaurav Choudhury

With no consensus in sight for a model to implement the goods and services tax (GST), state governments have presented a modified version of the proposed regime that would enable states to enjoy discretionary fiscal powers without requiring Constitutional amendments on the road to the new tax framework.

West Bengal finance minister Asim Dasgupta, who is the chairman of the empowered committee of state finance ministers, has written to finance minister Pranab Mukherjee with the contours of the new model.

The essence of this scheme lies in giving to the States, for the present, the power of collection and appropriation of service tax, which can be carried out with only legislative measures, instead of the power to levey service tax that can come only by amendments to the Constitution.

“The modified GST, it may be kindly seen, would, on the one hand not require Constitutional Amendments but only legislative changes and on, the other hand, have all the important features of GST,” Dasgupta wrote in a letter dated Augsut 27 to Mukherjee.

A meeting on Monday between state finance ministers and representatives of the Cenre failed to break a deadlock over constitutional amendments required to usher in the GST. The modified to GST model, Dasgupta said, will also address the fiscal autonomy of the states, give them an option to join the scheme now or at a later date as was the case when value added tax (VAT) was introduced.

The crux of the modified model lies in the 88th Constitutional Amendment Act, 2003 where a new article 268A was inserted. The article differentiates between levy and collection of taxes, providing room for manoeuvre.