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The
Congress-led United Progressive Alliance (UPA) had in an
effort to win over the state governments offered a
compensation package for 2008-09 to offset revenue
losses under the existing value-added tax (VAT) regime
even though the states had not carried out the committed
reforms. At Monday’s meeting, the government, in a
compromise, offered the same compensation formula that
was employed in 2007-08.
According to a member of the empowered group of state
finance ministers on GST who met Union finance minister
Pranab Mukherjee, while the deadline of 1 April may be
missed, GST would be in place within the next fiscal
year.
GST, an
attempt to stitch together a common market in India,
will replace a tangled web of national, state and local
taxes and is aimed as the culmination of a process of
indirect tax reforms that began in 1991. The levy is
ideally expected to help firms produce more efficiently
and give consumers more clarity about the taxes they pay
on goods and services.
The group
will meet on 27 October to finalize the draft discussion
paper and will release it on 10 November when they are
scheduled to meet Mukherjee to discuss GST
implementation. The group will hold discussions with the
stakeholders, including trade and industry, after
finalization of the draft.
Mukherjee convened the meeting after some state finance
ministers threatened to quit the committee overseeing
implementation of GST, taking offence at the tone of a
finance ministry letter on 17 September that queried why
the states should be compensated when they had not
undertaken their side of the bargain.
In the letter, reported by Mint on 15 October, sent by
Mukherjee to Asim Dasgupta, chairman of the empowered
committee, the finance ministry had said: “However, our
calculation shows that continuing last year’s
compensation package without any change even in 2009-10,
without the states imposing VAT on textile and sugar and
increasing their basic VAT rate from 4% to 5%, will
require the government of India to provide in the budget
an additional amount of Rs14,000 crore for compensation
to the states, which was not envisaged earlier.”
“The (Union) finance minister also assured that there
would be a joint mechanism to verify the compensation
claims made by different states,” said the member of the
committee, who did not want to be identified.
With the Union government’s “cooperative” stand, a major
roadblock for GST implementation has been cleared, the
member said. “Things are moving forward very fast. The
GST could be implemented next financial year, even if it
may not meet the deadline,” he added.
However, Dasgupta on Monday expressed confidence that
the new tax regime would be introduced from the
scheduled date of 1 April.
“I remain confident about the target to be achieved.
When I say we are working at it, we are very serious.
Problems of each state have to be accommodated in a
democratic manner. That is my responsibility,” Dasgupta,
also the finance minister of West Bengal, told reporters
after the meeting with Mukherjee.
In their meeting with Mukherjee, the state finance
ministers have reiterated their objection to the
Centre’s attempt to link the VAT rates to compensation.
When Mukherjee pointed out that the states had not
enhanced the lower VAT rate nor had they brought
textiles and sugar into the VAT net, they said that was
the prerogative of the states.
The state ministers were also of the view that it was
difficult for them to bring textiles and sugar under VAT
because of the slowdown as well as the sweetener’s high
domestic prices.
Gujarat has pointed out that the state had increased
lower and higher VAT rates, but insisted that it was the
state’s right to do so and it should not be included in
the formula to decide compensation.
Source
: Livemint, India, dated 20/10/2009 |
