The Punjab government fears Rs 4,465 crore direct hit to its already pale financial health if the Centre rolls out the Goods and Services Tax (GST). This has set alarms bells ringing and prompting state finance minister Parminder Singh Dhindsa to seek clarification from the Union finance ministry.
By imposing cess and surcharge, the state government had collected Rs 4,465 crore in the last fiscal. This tax does not form part of the state’s consolidated fund. Now, the state finance department mandarins have woken up from their slumber realising that in the “objective” of the Constitution amendment bill on the GST, it has been mentioned that “cesses and surcharges” related to the supply of goods will be subsumed in the GST. The government is anxious that if the GST bill is implemented in the current form, the state will have to bear a major financial blow.
Government sources say soon after realising that the Centre had retracted from its commitment, finance minister Dhindsa on June 29 dispatched an urgent letter to the Union ministry of finance, reminding the Centre that it had assured that “such levies”, which Punjab also imposes, will not be subsumed in the GST.
“It was also reiterated by the minister of state for finance vide his demi-official letter dated February 21, 2014, that such levies shall not be subsumed in the GST. But now, it has been mentioned in the objective of the 122nd Constitution amendment bill that cesses and surcharges in relation to supply of goods are to be subsumed in the GST,” Dhindsa stated in his two-page letter.
The finance minister has requested the union finance ministry to “clarify” whether these cesses and surcharges levied on sale and purchase will be subsumed in the GST. “If these are to be subsumed in the GST, then clarify whether losses on this account will be compensated,” Dhindsa has demanded.
The GST bill proposes to subsume various central indirect taxes, including the central excise duty, service tax, value added tax (VAT), entry tax, etc. The tax collected would be divided between the Centre and states in a manner to be provided by Parliament on the recommendations of the GST council.
Though Punjab has been supporting the GST, the state government has been raising concerns for compensating the state against likely revenue losses.
Under Punjab Municipal Fund, 11% of the total VAT collected was credited directly to this account to compensate municipalities. In 2014-15 financial year, Punjab collected Rs 1,407 crore under this component. “But this does not form part of the consolidated fund of the state,” Dhindsa informed the Centre.
Similarly, Rs 228 crore was collected under the Punjab Infrastructure Development Fund, while Rs 1,200 crore was collected under Punjab Infrastructure Development Fee. Punjab imposes 3% fee on the purchase of wheat and paddy, Rs 2 per litre on petrol sale and Rs 1 per litre on diesel sale that is collected directly from the oil companies.
Also, the state imposes 2% market fee and 2% rural development fee (RDF) on the purchase of agricultural produce like wheat, paddy and cotton. This is collected by arhtiyas. “This also does not form part of the consolidated fund. In 2014-15, we collected Rs 1,630 crore under the RDF component,” Dhindsa informed the Centre.