FM presses fast-forward on GST a week before budget

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Jaitley meets state FMs for a second time in a month, his junior says talks moving towards greater consensus

FM presses fast-forward on GST a week before budget
India’s most ambitious indirect tax reform plan, goods and services tax (GST), is rapidly moving towards consensus among states, raising hope that the government may announce a timeline for its rollout in next week’s general budget.

“Specifics have been thrashed out today (with the state finance ministers). We are moving towards greater consensus…” Nirmala Sitharaman, minister of state for finance, said after finance minister Arun Jaitley had a 150-minute-long meeting with some of the state chief ministers and finance ministers.

The GST is being touted as the reform of the decade, as it can help establish a unified market in the country and easily lift sagging GDP growth to 7-7.5 per cent by adding at least 1.5-2 percentage points.

The game-changing reform plan has been in limbo for several years now due to differences between the states and the Centre over a compensation package and also partly due to political partisanship.

“The fact that the meeting has taken place a week before the budget means that efforts are on to sort out issues,” the junior finance minister said.

Thrashing out specifics meant that the thorny issues that have dogged GST are going to be “sorted out sooner than later,” she said without committing to any timeline for its rollout.

Indications are that some of the concerns of the states would be woven into the GST legislation, particularly the issue of compensation in the event of loss of revenue to states following the change in the taxation patterns.

Asked if Jaitley’s budget speech on July 10 will draw a roadmap for GST rollout, Sitharaman said: “It’s the prerogative of the finance minister. The effort is to sort out issues so that it can happen. States have been proactive in helping a bro­ader consensus to emerge.”

The first step towards the implementation of GST will involve the passage of a Constitution amendment bill, allowing the Centre to levy tax on sale of goods and states to levy it on services. Other GST legislations will follow only after the Constitution amen­d­ment.

The parliamentary sta­nding committee on finance in the previous Lok Sabha, which was headed by senior BJP leader and former finance minister Yashwant Sinha, has already vetted the Consti­tution amendm­ent bill.

All the government needs to do is dust it and reintroduce it, incorporating the recommendations of the standing committee.

“If the nitty-gritty is thrashed out, it should not be a big thing to bring the Constitution amendment bill within this budget session,” Sitharaman said.

She said the fact that the finance minister had met the state finance ministers and some of the chief ministers twice within a mo­­nth showed that the misunderstandings over the GST were being removed.

“Within one month, the state finance ministers met twice. The discussions have been intense. And it is happening in a harmonious manner. We will not be able to give a time limit, but we are progressively moving forward,” Sitharaman said.

States claim they stand to lose Rs 19,000 crore a year because of the reduction in the central sales tax (CST) rate. The 4 per cent central sales tax was to be phased out in three years, reducing it to 2 per cent in the second year and one per cent in the third year before goods and service tax rollout on April 1, 2010.

The goods and services tax rollout did not happen, but the central sales tax has already been reduced to 2 per cent resulting in loss of revenue to the states.

“If the issues over the compensation package are resolved, half of the problems facing the goods and services tax will be resolved,” a top government official said, adding that 90 per cent of the other issues have already been sorted out.

States with strong manufacturing bases like Gujarat and Tamil Nadu have their own issues. Those issues are expected to be tackled by Modi, who himself had articulated them when he was the chief minister of Gujarat.

Three national parties — Congress, BJP and CPI(M) — had promised in their Lok Sabha election manifestos to implement GST if voted to power.


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