Centre drops idea of giving states equal taxing power

The Centre may drop the idea of granting states equal powers to levy indirect taxes as part of roll-out of a single tax rate regime.

The Centre may drop the idea of granting states equal powers to levy indirect taxes as part of roll-out of a single tax rate regime.

HT Image

The Finance Ministry had in April sought the Law Ministry's opinion on granting states such a power, but the idea seems to have been shot down.

Under the present disposition, states enjoy powers to legislate on items that form part of the Concurrent List, but the Constitution provides for the Centre's opinion to prevail in case of any conflict.

The Finance Ministry had explored the feasibility of introducing a Fourth List (Union List, State List and Concurrent List being the other three) that gives both the Centre and states equal taxing powers, as currently the Centre cannot impose indirect tax beyond manufacturing and states cannot levy Service Tax.

This anomaly needs to be resolved, by way of changes to the Constitution, for the single tax rate regime - Goods and Services Tax (GST) - to be rolled out from April next year.

"The Fourth List was only one of the options available with the lawmakers for amending the Constitution," Ernst & Young partner Bipin Sapra said.

The other option is to allow Centre and states to levy GST by amending the Union and State lists.

Sapra said, "What is important is that the amendments of the existing lists should be done keeping in mind the anticipated structure of the GST and the powers which the Union, states and other constitutional bodies, if any, would enjoy."

The suggestion is relevant given the fact that the Centre and the states have divergent views on the rate structure under the GST, which is scheduled to replace most indirect taxes from April one, 2011.

While the states have sought two rates for goods under the proposed GST, the Centre is for a single rate, which would be simpler to administer.

States have already floated a discussion paper on GST, which will replace the excise duty and service tax at the Central level and value-added tax at the state level, besides the cess, surcharges and local taxes.