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While piloting the
Finance Bill 2010 for consideration in the Lok Sabha late last week, the Finance
Minister reiterated the Government’s resolve to introduce the GST from 1st April
2011. The relevant portion of the Finance Minister's speech is reproduced
below:-
“I have indicated my
intent to introduce GST in the country with effect from
April 1, 2011. Centre is closely engaged with the
Empowered Committee of the State Finance Ministers in
finalising the GST design. Some of the states apprehend
that they may lose revenue in the initial years of the
GST regime. Centre is willing to provide compensation to
the States for these initial years, provided there is
agreement on the broad framework for a common threshold
for Goods and Services between the Centre and the
states; common exemption lists between the Centre and
the states; mechanism to check deviations and acceptable
level of overall GST rates. The design and modalities of
providing this compensation would be worked out in
discussion with the States and the Empowered Committee.”
As can be seen, the speech does reiterate the clear
intent of the Central Government to introduce the
fundamental tax reform measure of the GST with effect
from 1st April 2011. This by itself is very welcome
since there has been a fair amount of debate recently as
to whether the Government is firm in its resolve to meet
this deadline. The reiteration should therefore reassure
several stakeholders, including business, as to the
seriousness of all the key players in that regard. The
other takeaway from the speech is with regard to the
fact that there is an assurance from the Centre that
States would be compensated for possible revenue losses
in the initial years of the GST regime provided there is
agreement with regard to the broad framework of the GST
and some of the specific elements in that regard, as
referred to in the extracted portion of the speech
above. It would therefore be fair to say that the speech
is significant both for the reiteration of the timeline
as also for setting out the unfinished business
regarding the GST.
Before we look at the above elements that need to be
addressed, it must be noted that the Centre already
appears to have finalised and forwarded to the Supreme
Court, through a Presidential reference, a set of
questions on which it has requested an appropriate
response as regards the manner in which the Constitution
of India ought to be amended, in order to usher in the
dual GST which, as is now well known, will comprise both
a Federal or Central GST on all goods and services as
also a parallel State GST on the same. The reason for
the Presidential reference is because of the fact that
there is no one right way to amend the Constitution and
since there are several options available in that
regard, it is only appropriate for the Supreme Court to
opine on how these amendments may be most efficaciously
carried out, keeping in view the federal polity of the
country. Now, it can be easily appreciated that this
reference to the Supreme Court could potentially impact
the timeline for the introduction of the GST. It is
however possible for the Court to answer the reference
in time for Parliament to thereafter debate and carry
through the amendments, in the manner suggested, in the
monsoon session that will be convened in the second half
of the year. Thereafter, the individual State assemblies
would need to pass these amendments as well. It is
probably therefore correct to suggest that if the GST is
to come about by April 2011, the Constitutional
amendments must necessarily be effected in the aforesaid
timeframe. This is key to the whole process.
Coming now to certain other key tasks, it is worthwhile
noting that there is no agreement as yet with regard to
several basic design elements of the GST. Indeed, while
the First Discussion Paper on the GST has been put out
by the Empowered Committee, there has been no consensus
and agreement on some key design elements envisaged
thereunder. Further, the comments and responses put out
by the Centre in relation to the above Paper suggest a
significant divergence of views between the two key
players i.e. the Centre and the States. In addition, the
Thirteenth Finance Commission has, while accepting the
recommendations of its own task force on the GST,
incorporated a specific chapter on the GST in its latest
report published recently and it is seen that the views
of the Finance Commission and the Centre appear similar
on the key design elements. Hence, it is today the
position that while the Centre and the Finance
Commission visualise the GST in a particular fashion,
the states see it in materially different terms. The
differences relate to the following:
-
GST rates — Absolute
levels as well as the number of rates
-
Thresholds
-
Coverage
-
Subsumation of existing
taxes
-
Uniform exemption lists
-
Checks and balances to
address deviations
-
Others
Several of these elements
are referred to in the Finance Minister’ speech. As can
be seen, these elements are the basic building blocks of
the GST and indeed the test of a good GST is how these
design elements have been appropriately addressed. The
challenge is therefore in arriving at common ground and
in agreeing on what the relevant GST rates might ideally
be and for the other elements to be fashioned around
those agreed rates. Early agreement on these matters is
hence critical and the envisaged mechanism is for the
Finance Minister and his team and the EC to carry out
extensive consultations and strive for resolution in a
few months from now. It is only then that we would meet
our tryst with the April 1 deadline. The next few months
will hence prove decisive.
Source:
Business Standard, India, dated
03/05/2010
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