In a fresh setback to the proposed rollout of the Goods and Services Tax (GST) from the next fiscal, States on Wednesday rejected the draft constitutional amendment Bill in its present form as it seeks to provide veto powers to the Centre over indirect taxation matters pertaining to the States.

Even as Union Finance Minister Pranab Mukherjee made a fervent appeal in the Lok Sabha for the whole-hearted cooperation and support of all political parties in approving the constitutional amendments that are necessary for ushering in the new indirect tax regime from April 1, 2011, State Finance Ministers at the Empowered Committee meeting viewed that giving veto powers to the Union Finance Minister would dilute their fiscal autonomy.

Briefing the media after the meeting, Empowered Committee chairman Asim Dasgupta said: “This proposed draft constitutional amendment Bill related to GST in its present form is not acceptable to the States...States in general have reservations about the Union Finance Minister having any veto power over State GST. The Union Finance Minister, of course, would have an exclusive authority with respect to Central GST.”

Since the GST regime is to replace the excise duty and service tax at the Central level and the Value Added Tax (VAT), cess, surcharges and other local levies at the level of States, Mr. Dasgupta explained that the States were apprehensive of infringement on their financial autonomy and therefore had certain reservations on the Bill's provisions for a GST Council and a GST Disputes Authority.

‘No place for disputes authority'

In fact, the States are of the view that the GST Disputes Authority should not find a place in the constitutional amendment Bill and may be incorporated in GST legislations.

“So, how to handle a situation where the State GST and Central GST would be there will have to be appropriately and acceptably handled,” Mr. Dasgupta said.

While opposed to certain clauses of the draft Bill, Mr. Dasgupta pointed out that the States were ready to accept the provision of empowering the Centre to levy tax in the concurrent list.

“That part of the constitutional amendment suggested is acceptable to States, but not the Bill as a whole. The States have reservations,” he said.

To work out a consensus on these issues, the States require more time but are eager to have a meeting with Mr. Mukherjee as soon as possible.

‘Another paper needed'

On whether further discussions would delay the GST rollout, Mr. Dasgupta said: “I did not say that.” However, he noted that another discussion paper on the draft GST Bill may be required.

“We may need to have a second discussion paper quickly circulated,” he said, “especially when Mr. Mukherjee has talked about including petroleum products in the new tax regime to hold the price line.”

Mr. Dasgupta stressed that these differences did not mean that the States wanted the introduction of the draft Bill deferred to the winter session of Parliament.

“We are only saying that the GST amendment Bill should be retained in a proper manner and taken together; officials of the Union and States can do a very quick job. There should be an attempt made wholeheartedly [to have the Bill passed in the monsoon session],” Mr. Dasgupta said.

‘We need more time'

Some BJP-ruled States, however, are not as optimistic. “It is impossible to introduce GST from April next year,” Madhya Pradesh Finance Minister Raghavji said.

Pointing to the strong opposition by States, Mr. Raghavji said: “Everybody is opposed to the veto power of the Union Finance Minister...We need more time. The States' autonomy and federalism will be destroyed [if we accept this Bill]. This is against the fiscal autonomy of the States. A majority of the States — BJP-ruled States and others like Uttar Pradesh, Tamil Nadu and Orissa — are also against it.”

Gujarat Finance Minister Saurabh Patel went a step further, saying: “In the present form it [constitutional amendment Bill] will not come in the Monsoon session. The Centre should allow the States to be empowered. If they don't allow this, GST is dead.”

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