The controversial Central Sales Tax (CST) compensation issue is not on the agenda of Wednesday’s meeting of state finance ministers on a national Goods and Services Tax (GST).
Some states are opposed to a reduction in their taxation powers under the proposed regime. Even some Bharatiya Janata Party-ruled states are not willing to compromise their autonomy over taxation for the sake of a GST.
Madhya Pradesh, for instance, has asked the Centre that the revised draft of the Constitution amendment Bill on the issue not take away the legislative autonomy of a state assembly to decide tax rates. In the proposed Bill, the rate could be altered only by the proposed GST Council, comprising representatives of the Centre and states.
Constitution provides mutually exclusive powers of taxation to Centre and states. Proposed GST regime is a departure
Manufacturing states get no incentive under GST regime. Exporting states should retain two per cent of state GST
GST regime would impose dual tax system on traders and raise threshold turnover
Proposed GST Council will override supremacy of the legislature — both at the Centre and states on taxation matters
Wants adequate compensation for revenue loss due to cut in Central Sales Tax. States peg the compensation at Rs 3,600 crore
Keep petroleum, alcohol out of GST
Officials in MP said the Constitution provided different taxation powers to the Centre and states to avoid conflicts. “The proposed GST regime is a departure from the basic concept of taxation. It will increase tax incidence on small businesses, which are (proposed to be) taxed by either of the two, and will result in dual tax administration for traders,” a state official said.
On Monday, the government of Tamil Nadu had also raised similar concerns. The foremost issue is fiscal autonomy. “The proposed GST Council, with the functions assigned to it, will override the supremacy of the legislature – both at the Centre and in the states in taxation matters. This is unacceptable to Tamil Nadu,” said its chief minister in a letter to Prime Minister Narendra Modi.
The Akhilesh Yadav government in Uttar Pradesh also expressed apprehension on this score. Yadav had written a five-page letter to Union Finance Minister Arun Jaitley earlier this month, to protest that the new GST plan would effectively curtail the Constitutionally guaranteed autonomy of the state, beside sapping revenue flow for development activity.
UP, too, says it is concerned that the proposed GST regime would impose a dual tax system on traders and raise the threshold turnover limit.
Gujarat, another BJP-ruled state, opposes the destination-based nature of a GST. It said this gives no incentive to manufacturing states to promote this sector. It wants that exporting states be permitted to retain two per cent of the state component of GST.
Though CST compensation is not on the agenda of the meeting on Monday, West Bengal has reminded the Centre of its dues of Rs 3,600 crore on this front.
CST was one of the major issues to derail GST, originally scheduled to come from April 1, 2010. It had prominently figured in almost all past meetings of the Empowered Committee of state finance ministers.
Jaitley has already assured states that the Centre would clear their CST compensation dues of around Rs 34,000 crore over a three-year period. CST is levied by the Centre on inter-state movement of goods but collected by states. The issue of compensation arose because the Centre cut CST from 4% to 2% in phases after state-level value-added tax was introduced from April 1, 2005.
In general, states have also demanded keeping petroleum and alcohol out of a GST. The draft Bill kept these products under a GST.
The Constitutional amendment has to be passed by two-thirds of those voting in the Lok Sabha and Rajya Sabha. In the Lok Sabha, the ruling National Democratic Alliance has 333 members,a little short of the 360 required out of 539 members. And, it has only 57 members in the Rajya Sabha, much less than the 161 needed of the total strength of 242.
Also, half the state legislatures have to pass the amendment after Parliament does so. Hence, they have to be on board for a decision. The Constitutional amendment is also only an enabler for introduction of a GST, since the Centre cannot impose a tax beyond manufacturing and states cannot levy it on services under the current scheme of things. After this Bill is passed, the Centre and states are required to being in their respective GST legislations as well.
(with inputs from Lucknow, Bhopal, Kolkata and Chennai)