• GST deadline extended to 2011     

India will be unable to meet its target for introduction of the single Goods and Services tax (GST) by 1 April, after all the state governments, excluding those of Kerala and Jammu and Kashmir (J&K), refused to sign on and instead wished-for that the launch of a unified tax regime be postponed to 2011.

The appointed committee of state finance ministers asked for another meeting in the first week of January to finalize the debatable issue of tax rates. The finance ministers also expressed their doubts on the proposal put forth by the 13th Finance Commission (TFC) to have a uniform GST rate of 12%—comprising a simultaneous levy of 5% by the Centre and 7% by the states.

GST has been allocated as the single biggest tax reform initiative that will economically combine the country and do away with the existing numerous tax structures. TFC has reckoned that the implementation of GST will grow the economy by as much as an additional 1.5 % points every year over and above the existing growth rate.

Immediately after the meeting of the empowered committee, Madhya Pradesh Finance Minister Raghavji, who uses only one name, said: “Our demand for deferring the implementation was supported by even Congress-ruled states.”

The empowered committee’s Chairman, Asim Dasgupta, Finance Minister of West Bengal, admitted that the Central Government had been unable to bring in GST legislation in the winter session of Parliament, which is due to conclude on 21 December.

To implement GST, the Central Government will have to set up a Bill looking for amendments to the Constitution. Currently, the power to tax has been divided between the Central and State Government.

Dasgupta added that India’s finance minister Pranab Mukherjee “has said he is very willing to discuss (this) with us in January after this Parliament session is over”. He said, “After our meeting with him, we would be able to take a decision on constitutional amendments and other preparations.”

The empowered committee will meet again on 7 January in New Delhi for a two-day meeting, which will also see the evaluation of the study undertaken by the National Institute of Public Finance and Policy on the revenue significances of the introduction of GST for states.

Some state finance ministers, who were pushing for deferment of the GST deadline, mentioned that industry representatives were contrasting to the introduction of GST mid-way through the year, a reaction to a proposal to roll it out by June instead of 1 April, 2010.

However, representatives of industry debated otherwise and were let down by the move to defer the implementation of GST. “Everybody expected that it would not be practical to implement by 1 April. Having said that, an issue of indirect tax need not be deferred by a year. It can happen anytime in the year; only a lead time of three months needs to be given for us to prepare,” said a representative of an industry lobby group.

Vivek Mishra, Partner at audit firm Pricewaterhouse Coopers pointed out “Based on the amount of issues to be decided, all the elements are yet to be in place. It will take one year only to have the design of GST in place. It may take another two years to implement it.