Centre blinks, chances of GST deal improve  

In a confidence-building move, the Centre has signalled its willingness to increase the compensation it will pay states during the transition to a single goods and services tax (GST), beyond the Rs50,000 crore recommended by the 13th Finance Commission (TFC).

The Centre, in its discussions with state finance ministers in New Delhi on Friday, also indicated it was open to the possibility of compensating states this fiscal for revenue lost because of a low Central sales tax (CST).

The decision could bridge part of the trust deficit after the last round of meetings between the two sides in January.

“A very positive suggestion,” said Asim Dasgupta, chairman of the grouping of states, on the Centre’s move. The states hope to meet finance minister Pranab Mukherjee within a fortnight to work out details of the compensation on CST, Dasgupta said.

Some state finance ministers cautiously welcomed the Centre’s move to rebuild trust, but said divisions could surface once the talks get into details.

A tricky moment in negotiations could come when GST compensation is discussed. Dasgupta said the Centre was prepared to go beyond the Rs50,000 crore figure over a five-year period suggested by TFC.

TFC’s compensation is linked to the roll-out of GST system with minimal distortions. The system suggested by states in November 2009 is relatively complex.

“By and large, states differ with the views of TFC,” Dasgupta said, highlighting a potential source of friction.

However, the Centre’s conciliatory approach on Friday has improved the prospects of a tax-reform deal.

On Friday, the Centre’s representatives pointed out they had not crystallized their position, thereby creating space for negotiations on GST architecture in the coming months.

GST seeks to stitch together a common market to replace the existing fragmented indirect tax structure. Its roll-out is expected to lower business costs and eventually push down prices, and for the first time economically unify the country.

Source: Livemint, India, dated 21/05/2010