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For the purpose, a new
Fourth List is proposed to be created in the Seventh Schedule of the
Constitution. Designed to deal exclusively with GST, the Fourth List visualises
a governing council headed by Union finance minister and comprising state
finance ministers as its members. The council will have overriding powers on
issues of indirect taxes - neither Parliament nor state legislatures can take an
independent view.
As of now, there are three Lists - Union, State and Concurrent. While
Constitution empowers the states to legislate on matters on the Concurrent List,
in case of a dispute, it is a law enacted by Parliament which prevails over
those promulgated by state legislatures.
States, which stand to lose a sizeable part of their revenue to GST, are not
ready to countenance this arrangement. Anxious to unblock the obstacle holding
up implementation of GST by assuaging the fears of states, Centre has thought of
the Fourth List.
States are satisfied with the guarantee that the Fourth List is supposed to
provide, with their positive response obviating the need for the Centre to make
a presidential reference to ascertain from the Supreme Court whether it could
move unilaterally on the issue.
The law ministry, in consultation with the finance ministry, has prepared a
draft bill which will be sent to the states for their approval next week.
The council, as proposed in the Fourth List, will have overriding powers on
states so that they don't deviate from the GST regime.
The proposed amendment is also in line with the demands of trade and industry
which wanted certainty and uniformity across the country on the new indirect tax
structure.
The proposed GST, an ambitious bid to reform the indirect tax regime, aims to
streamline the movement of goods across India with a uniform countrywide tax
structure, abolishing the current scheme of multiple taxes - central excise,
service tax, state VAT, surcharges and cess which taken together can be as high
as 30%. This was unanimously adjudged to be hindering smooth movement of goods
and services, an impediment for the objective to clock double-digit growth.
A 16% GST rate on 50 lakh business establishments, assuming a common minimum
turnover threshold of Rs 10 lakh and above, can help mop up the same revenue
while sparing business the harassment they face while moving their goods across
states. The Centre is assuming a tax base of 50 lakh business establishments on
a common turnover threshold of Rs 10 lakh for the application of GST.
Sources said GST rates for both the Centre and states could be 8% each, or the
states could have a percentage point more depending on the final negotiations.
The Union finance ministry, keen on meeting the April 2011 deadline for GST
rollout, has also agreed to states' demands to keep crude oil, petrol, diesel
and ATF out of the GST structure. However, it put its foot down on including
purchase tax in the GST bouquet and on a uniform turnover threshold for both the
Centre and states.
The finance minister has already clarified that the government is ready to raise
the compensation to states for a switchover to the new tax regime from the Rs
50,000 crore proposed by the 13th Finance Commission. This will include special
incentives to those states such as Punjab and Haryana which will lose out on
purchase tax. The two states earn around Rs 1,000 crore annually from the
particular levy.
States were in favour of a dual rate GST. They also wanted the central threshold
for establishments to be brought under GST purview kept much higher at Rs 1.5
crore. The Centre, however, did not agree.
The Centre is also working on a common exemption list. Currently, there are 340
items on the Union list and 99 items on the State list which are exempted.
For smooth implementation of the new tax structure, the technology assistance
group, headed by Nandan Nilekani, has been closely working with officials of the
Central Board of Excise and Customs. Nilekani met CBEC officials twice in the
last three weeks at North Block to discuss the new IT infrastructure which is to
be made functional by April next year.
The proposed GST was initially scheduled to be implemented from April 1, 2010.
However, lack of consensus between states and the Centre on a uniform tax
structure and their inability to carry out necessary legislative amendments led
to its postponement.
Source: Times of India, India, dated
28/05/2010
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