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“I am going to release
funds,” Mukherjee said, referring to compensation that the states have sought
from the Union government to offset the loss in revenue after cutting central
sales tax (CST).
The states have lowered CST over a couple of years to the current 2% as a move
to transition to GST. In January, GST negotiations between the Centre and the
states were marred by disputes over the compensation. The two sides have not had
a full-fledged discussion on GST since then, partly on account of the
budget-making process, which got under way across the country in February.
By moving to GST, policymakers are trying to stitch together a common market in
India to replace the current fragmented structure. The roll-out of GST is
expected to eventually lower transaction costs for businesses and bring down
prices for customers.
When merchandise, manufactured in one state is sold in another state, CST
accrues to the state where the manufacturing took place. The states had agreed
to initially lower CST and eventually eliminate it when the transition to GST
took place as it is akin to exporting tax to the state where the consumption
takes place. GST, unlike CST, will be levied only at the point of consumption.
“The government’s willingness to release funds will remove a friction point
which has been disruptive in GST implementation,” said Satya Poddar, partner at
Ernst and Young.
Mukherjee, who spoke about GST in his address at the Confederation of Indian
Industry’s (CII’s) annual session, said the Union government would shortly start
releasing CST compensation funds to the states. Tamil Nadu and Gujarat, two
states with a high concentration of manufacturing industries, were among the
most vocal in the demand for CST compensation during the January meetings
between the two sides.
Mukherjee’s attempt to reach out to the states in order to restart GST
negotiations in a more congenial environment is seen as a necessary condition to
transitioning to a new indirect tax regime.
According to Mukherjee, GST does not require just broad consensus between the
Centre and the states, it also requires absolute consensus.
A roll-out of GST would need constitutional amendments as the existing
demarcation between the kinds of taxes the Centre and the states can collect
would have to be removed.
Mukherjee said he would now have to engage state chief ministers and finance
ministers to push forward negotiations on GST by convincing them that a
transition to it would be a “win-win” situation.
Source:
Livemint, India, dated
12/05/2010
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