Finance Minister Arun Jaitley, who is meeting state finance ministers on Thursday to garner their support for the Constitution Amendment Bill for goods & services tax (GST), is likely to immediately dole out about Rs 13,000 crore in Central Sales Tax (CST) compensation to states.
The minister, even as he was walking the tightrope to contain the government’s fiscal deficit, might propose to clear about a third of states Rs 34,000-crore CST dues in the first supplementary demand for grants, to be tabled in the current Parliament session, officials said.
The empowered committee of state finance ministers is to discuss the draft Constitution Amendment Bill for implementation of GST at their meeting on Thursday. Later that day, Jaitley will meet the state FMs and try to reach a broad understanding on crucial issues. That will be against the backdrop of Prime Minister Narendra Modi’s Sunday meeting with chief ministers where he emphasised the need for states’ greater role in the proposed body to replace the Planning Commission.
“We have shared the draft Constitution Amendment Bill with the empowered committee. The matter will be handled at the political level now,” said a finance ministry official who did not wish to be named.
Among the states that were earlier opposed to the proposed GST regime, Madhya Pradesh and Gujarat have relented since a Modi-led government took charge at the Centre in May this year. In two other major states, Maharashtra and Harayna, Modi’s Bharatiya Janata Party has replaced the Congress at the helm of governments after the recent Assembly polls there. Tamil Nadu was dissenting state, but it is expected to mellow down after the Centre recently gave relief to J Jayalalithaa, the chief of the ruling All-India Anna Dravida Munnetra Kazhagam, in an old income-tax case.
Though consuming states will benefit from a destination-based tax, West Bengal might still not extend its support to the Bill easily, given the recent war-of-words between Mamata Banerjee, that state’s chief minister, and BJP President Amit Shah. It is important for the government to have Trinamool Congress on its side, as the BJP-led ruling coalition does not have the required number of members to get the Bill passed in the Rajya Sabha.
“States will press their demand to keep fuel outside the ambit of GST. The Centre’s suggestion on keeping petroleum products zero-rated under GST will not work. If petroleum is subsumed, states cannot get CST on inter-state movement. Intergrated GST gives revenue to the consuming state, while CST gives it to the originating state,” said a state government official.
Though the Centre seems firm on its decision to subsume petroleum and entry taxes in GST, with this provision for first tranche of CST compensation, Jaitley is likely to assure states the Centre would compensate them for three years’ losses under GST as well, even without a provision for that in the Constitution.
After the previous two finance ministers refused to release CST compensation till states extended their cooperation on GST, Jaitley promised to clear the outstanding amount over a period of three years.
The central government wants to table the Bill in the current Parliament session, so that GST can be implemented from April 2016. The Bill is important for the government, especially at a time when industry is beginning to complain about the lack of crucial reforms even six months after the change of power at the Centre.
“If they do not present the Constitution Amendment Bill in this session, GST will not happen,” said Harishanker Subramaniam, Partner, EY. He, however, added it was equally important to bring out a GST with minimum exemptions. So, petroleum products, property, entry taxes and even alcohol should be subsumed in GST.
As a robust information technology (IT) infrastructure would be the backbone of GST, as highlighted by the prime minister several times, the finance ministry has also started assessing IT preparedness of states; Revenue Secretary Shaktikanta Das is planning a meeting on the issue on Wednesday.