Several States are opposed to the shift in the balance of fiscal power between the Centre and the States that the proposed Goods & Services Tax (GST) will cause. “The GST idea is not completely abandoned yet, though the hopes of getting it are receding,” said a highly placed official source in Tamil Nadu on condition of anonymity.
On Sunday, Nitinbhai Patel, Finance Minister of Gujarat told The Hindu on phone “In its current form the proposed GST is not acceptable to Gujarat. “Gujarat disagrees with the GST Council as it will lead to dilution of individual states’ powers.”
Last month, Tamil Nadu Minister for Commercial Taxes and Registration B.V. Ramanaa said in Delhi, “Such powers to the GST Council are likely to encroach upon the legislative powers of the State enshrined in the Constitution.” “In the name of harmonised tax structure, the State’s already limited authority to levy taxes should not be snatched away.”
In the proposed GST Council the Union and States’ Finance Ministers will collectively take decisions such as on fixing the rates of tax and the exemptions from the levy that at present individual Finance Ministers take in States.
“Though the opposition is being articulated as technical points, the hold-up really is to the shift of the Centre-State balance of fiscal power,” said a source closely associated with the GST’s design. Said the Tamil Nadu source: “This is not a political posturing so much — if the Opposition forms the next government at the Centre, the obstructions will then come from the Congress-ruled States.”
Finance Ministry sources told The Hindu : “There is a breakdown of trust between the States and the Centre.” “Each time a technical issue is resolved more are put forth.”
“Even if, we keep alcohol and petroleum out of the GST in line with the States’ demand there might then be a call for tobacco too, the sources said, adding: “We might still introduce the Constitution Amendment Bill in the Winter Session of Parliament.”
In its report on the Union Finance Ministry’s draft Constitutional Amendment Bill for GST, the Empowered Committee of State Finance Ministers has demanded that alcohol and petroleum be kept in the exemption list.
Its chairman and Jammu & Kashmir Finance Minister A. R. Rather told The Hindu , “The States unanimously without any dissent notes voted for the GST but want their grievances and apprehensions addressed.”
“The Constitution should be amended only after everybody agrees fully,” said Mr. Patel.
Dr. Parthasarthy Shome, Advisor to the Union Finance Minster, recently stated that the technical issues were resolved and it was up to the politicians.
“For the States that will lose revenue due to the shift to the GST — such as Gujarat and Tamil Nadu — it is not clear what is the compelling reason for them to give it up,” the Tamil Nadu source said.
There are apprehensions of revenue losses. Gujarat Cabinet Minister Saurabh Patel, who normally represents the State at the Empowered Committee’s meetings said last month in Delhi, “If the Union government … enacts the GST regime, Gujarat will have to bear Rs. 14,000 crore loss per annum.”
The GST will be levied on consumption of goods and services whereas States such as Gujarat and Tamil Nadu are producing and net exporting States.
There is a proposal to compensate such States for the revenue they might lose after the shift to the GST.
