Prime Minister Narendra Modi on Monday took stock of India’s biggest tax reform initiative — Goods and Services Tax (GST) — with the government planning to introduce the Constitution Amendment Bill during the Parliament’s winter session later this year.
Modi and finance minister Arun Jaitley along with top finance ministry officials discussed in detail the current status of the proposed indirect tax system, which if adopted, can dramatically alter tax administration by subsuming web of levies such as excise, value added tax and octroi into a single tax and stitch together a common national market.
To begin with, the Centre and states are believed to be working to iron out the thorny issue of revenue losses with a fresh compensation plan spread over three years for reimbursing states after phasing out the central sales tax (CST).
The government has gradually brought down the level of central sales tax (CST)—a proportion of which go to the states-- over the last few years from 4% to 2% as a precursor to rolling out GST. As an interim measures, the Centre has periodically compensated state governments for revenue loss.
The centre had disbursed R6,000 crore in 2011 and another R9,000 crore had been provided for in 2013, but the states have been claiming compensation for 2011-12, 2012-13, and now 2013-14.
The first tranche – of about R13,000 crore — of the new CST compensation plan is likely to be paid in this financial year itself, with similar installments over the next two years.
Under GST, the Centre and states will tax goods and services in identical rates. For instance, if 20% is the agreed rate on a certain good, the Centre and states will collect 10% each on the good.
States also want an independent compensation mechanism to be incorporated in the Constitution Amendment Bill.
States want petroleum and liquor to be kept out of GST.
GST’s implementation has faced political hurdles as it could rob state governments of discretionary fiscal power.
Last month, Kashmir finance minister and chairman of the Empowered Group of State finance ministers Abdul Rahim Rather had said R13,000 crore has been pending as CST compensation with Centre as on March 2010.