State FMs’ panel wants purchase tax merged with GST     

The empowered committee of state finance ministers has decided that purchase tax levied by some states should be subsumed in the proposed goods & services tax (GST) despite stiff opposition from some states that levy the tax.

Subsuming this tax in the GST will bring down the cost of foodgrains as these will only face taxes imposed by local mandis. The second draft paper on GST, expected to be unveiled by the month-end, will make a suggestion to this effect, a state government official privy to the discussions told ET.

Purchase tax is a levy imposed by some states on foodgrain purchases. Punjab and Haryana levy a 4% purchase tax on transactions in foodgrains. Both states have vehemently opposed the inclusion of the tax in the GST, demanding extra compensation for the revenue loss they will incur on this count.

The first draft paper on GST framework put out last month had kept this tax outside its purview despite the Centre’s insistence on including it. However, the Centre’s proposal to have a uniform turnover threshold of Rs 10 lakh for both central and state GST has failed to cut ice with the states. The draft GST framework envisages two components to the GST, a central GST and a state GST.

States are insisting that the Centre maintain the threshold for central GST at the current level of Rs 1.5 crore for levying excise duty. States have argued that since the Centre will get the right to collect tax from traders as against just manufacturers now, the expansion in tax base will make up for any revenue loss on this count.

Moreover, this will also make the new tax more politically acceptable to the trading community, particularly small traders. “Small traders are apprehensive about the GST as they fear they will now have to deal with two sets of authorities,” said Bihar deputy chief minister and finance minister Sushil Modi.

The Centre had not endorsed the first draft paper brought out by the empowered committee due to differences on these issues. The Union finance ministry is already working on a draft framework that it may discuss with the prime minister after having discussions with the empowered committee.

The panel is scheduled to meet the finance minister Pranab Mukherjee on January 7. The GST, a major tax reform proposed by the United Progressive Alliance government, aims to create a common Indian market.