The panel of the State Finance Ministers on GST said on Friday that many issues, including a mechanism for CST compensation for the current fiscal, will have to be ironed out before rolling out the new indirect tax regime.
Agreeing with Prime Minister Manmohan Singh, Chairman of Empowered Committee of State Finance Ministers and Bihar Deputy Chief Minister Sushil Modi said the Goods and Service Tax (GST) implementation will have to wait till 2014.
“The Prime Minister has said GST rollout will happen after next general elections. So, they will have to compensate even for 2013-14. That issue is alive, so many other issues need to be ironed out before GST is launched,” he said while addressing the industry chambers.
Last month, Dr. Singh had assured that the long-awaited GST regime will be in place in an “appropriate type” by 2014.
Mr. Modi said: “I would not like to contradict the PM. The problems facing GST are not NDA Vs UPA. The empowered committee will continue to work to ensure GST is rolled out in 2014-15“.
The GST Bill, which was introduced in Parliament in 2010, is currently being vetted by the Standing Committee on Finance. After the committee submits its report, the states and the Centre would together finalise the draft and bring it back to Parliament.
“Parliamentary standing committee will submit its recommendations on GST in a month. Another committee is going to be constituted for drafting the GST Bill after Standing Committee submits its recommendations,” Mr. Modi said.
He further said that the Centre would have to agree to compensate the states for five years after implementation of the GST, as the states would then incur losses on account of subsuming of most indirect taxes.
“And that compensation should be through an independent mechanism,” he added.
The government in its budget had made of provision of Rs. 9,000 crore as compensation to states for 2010-11 for CST phase out.
CST was reduced from 4 per cent to 3 per cent in 2007-08 and further to 2 per cent in 2008-09 after the introduction of Value Added Tax (VAT). The centre had then promised the states that it would bear losses due to reduction of CST.
In January, the states had agreed for a lower payment of Rs. 34,000 crore for three years, 2010-11, 2011-12 and 2012-13 as CST compensation.
According to the resolution at the meeting on CST issue, the Centre would bear 100 per cent of the loss accrued to states in 2010-11 fiscal on account of lowering of CST.
However, for 2011-12 and 2012-13 fiscals, the Centre would give 75 per cent and 50 per cent of the losses to the states.
The GST has been facing opposition from several non- congress states which have accused the Centre of trying to encroach on the powers of the states and that such a move would hit their finances.