Differences set to delay GST rollout     

As differences among states and the Centre persist over various aspects of goods and services tax (GST), the deadline of April 1, 2010 for its implementation is likely to be missed.  

Releasing a discussion paper on GST on Tuesday in a meeting of state finance ministers, FM Pranab Mukherjee was non-committal on meeting the deadline and said, "So far as dates are concerned, we are working on it." Several state finance ministers demanded to extend the deadline to avoid hurried implementation of the new tax regime.

According to the discussion paper, the proposed GST will have dual rates central and state GST. Central GST (CGST) will be a combination of central indirect taxes like excise duty, services tax, additional custom duty, surcharges and cesses. The state GST will be levied in lieu of value-added tax (sales tax), entertainment tax, luxury tax and state cesses and surcharges.

There are issues that need to be sorted out before GST becomes a reality. One of them is fiscal autonomy of states. Under GST, there will be a uniform tax rate on a particular item across the country. That means, states will have to compromise freedom to impose separate tax and surcharges to raise resources. ‘‘Fiscal autonomy is important to allow the centre and states to set the tax rates according to their revenue needs, said Tamil Nadu FM K Anbazhagan.

It is learnt that finance ministers of many states concurred with his view and demanded to develop a mechanism where the freedom to levy taxes on states should be retained in new regime also.

State FMs also wanted to evolve a fool-proof mechanism for compensation in case there is a revenue shortfall in the new regime. ‘‘The state should be assured of such automatic compensation mechanism administered by an autonomous agency to ensure its past revenue trend and unhindered flow of compensation amount for five years from the date of introduction of GST as a pre condition for joining GST," said Anbazhagan. Gujarat's finance minister Saurabhbhai Patel also demanded the same.

However, the discussion paper did not give any idea on the rates of CGST and SGST. It is learnt that the rates will be finalized only when the amount of tax mobilization could be ascertained in the GST regime. It will be fixed in a way that the new system will be revenue neutral. However, chairman of the empowered committee Asim Dasgupta said the rates will be disclosed when the bills for GST implementation will be introduced in state assemblies and Parliament.

In case of goods, the paper said the Empowered committee has decided to adopt a two-rate structure — a lower rate for necessary items and goods of basic importance and a standard rate for goods in general. There will also be a special rate for precious metals and a number of exempted items. However, for services there will be a single rate.

It made specific suggestions such as tax on alcohol and petroleum should be out of GST, while tobacco will be included in it. The committee would take a final view on whether natural gas should be included in GST after further deliberations.

Source : Times of India, India, dated 11/11/2009