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The
empowered committee, headed by West Bengal finance
minister Asim Dasgupta, was expected to finalize the
structure of GST during the weekend meeting and failure
to do so would mean that the UPA will be hard-pressed to
meet the self-imposed deadline of introducing the tax by
1 April.
According
to the finance minister of one of the states, who did
not want to be identified due to the sensitivity of the
issue, the discussions at the meeting are likely to be
dominated by the Tamil Nadu chief minister’s letter
questioning the empowered panel’s standing. “This means
that we certainly are not going to meet the deadline,”
the minister said.
GST is an
attempt to economically integrate all states. Currently,
states have the power to independently levy indirect
taxes on some goods. As a result, some of the decisions
made by companies have more to do with tax avoidance
than operating efficiency, say analysts.
Under GST,
there will be uniform tax rates on almost all important
goods and services across states.
In June,
in a letter addressed to Prime Minister Manmohan Singh,
which was sent to all chief ministers and also widely
reported in the media, M. Karunanidhi questioned the
standing of the empowered committee to take the decision
on behalf of all states.
“The chief
minister has pointed out that the group has not been
empowered by the Constitution, so it cannot take
decisions on behalf of all the states,” the finance
minister said. “He also said it is a deliberative body
to help forge a national consensus and that what
chairman (of the committee) says cannot be the national
consensus.”
Separately, top officials in Madhya Pradesh and
Chhattisgarh governments told Mint that they had also
written to the Prime Minister expressing their concerns
over the ambitious tax reform. “There are still many
issues on which consensus among states has not emerged.
In addition, accurate estimation of losses to the state
has also not been possible so far. Similarly, commitment
for compensation for the losses to the states as well as
the compensation mechanism is to be agreed upon,”
Chhattisgarh chief minister Raman Singh said in the
letter sent earlier this month.
Madhya
Pradesh raised a political argument, too. Claiming that
the proposed design was “highly regressive” and will be
“unpopular with the common man”, the letter from the
state said: “The realignment of taxes will have
unintended consequence because of shift in tax incidence
from the rich to the poor... Proposed design will
increase the tax burden and compliance cost for the
small-scale industries sector and may adversely affect
the viability of survival of such units. Very high
visible rate of taxation on items of daily needs is
likely to encourage the underground economy, resulting
in massive tax evasion” chief minister Shivraj Singh
Chauhan said in his letter to the Prime Minister, adding
that Madhya Pradesh will lose substantial revenue, which
will be a major constraint on the state economy.
The
empowered committee of state finance ministers was
constituted to ease India’s move to the current
value-added tax (VAT) system. Once that was achieved,
the panel began to discuss and also come up with a road
map to transition to GST.
“My
understanding is there is no statutory backing (for the
empowered committee). That doesn’t detract that the
committee has a persuasive value and (preparing) a
blueprint for action,” said S. Madhavan, executive
director of audit and consulting
firm PricewaterhouseCoopers.
According
to a senior official closely associated with the
transition to GST, Tamil Nadu’s move indicates that “all
knives are out” to stall the process. The attempt to
stall the process could be posturing to extract more
concessions, according to people associated with the
transition.
As
reported by Mint on 11 and 12 June, the main Opposition
the Bharatiya Janata Party-ruled states had opposed the
implementation of GST and sought a “serious” relook at
the scheme, saying that it was “anti-poor”. Addressing
the state finance ministers’ meet on 11 June, Tamil Nadu
finance minister K. Anbazhagan joined the list of state
finance ministers who are uncomfortable with the 1 April
2010 deadline to implement GST.
“The road
map towards GST must be carefully chalked out based on
consensus and not compulsion. I feel that the targeted
implementation date of 1-4-2010 is premature and
hurried, especially since even VAT, the precursor to GST,
has not yet stabilized,” he said in a written speech.
Source
: Livemint, India, dated 19/08/2009
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