C. Gouridasan Nair

Differences between the Centre and States on tax rates

Kerala keen on rollout of GST on April 1 next

10% rise in State’s tax revenue estimated

THIRUVANANTHAPURAM: Delay in the rollout of the much-awaited Goods and Services Tax (GST) is likely to prove a dampener to the State government’s hopes to raise additional revenue during fiscal 2010-2011.

Kerala has been looking forward eagerly to the introduction of the GST, which has been billed as the single biggest tax reform initiative that would unify the country in financial terms and do away with the several tax structures that are currently in place. However, a clutch of problems, including differences between the Central government and the States on tax rates, has held up the rollout and any breakthrough would have to wait till the meeting between Union Finance Minister Pranab Mukherjee with the members of the Empowered Committee on GST chaired by West Bengal Finance Minister Asim Dasgupta.

Kerala and Jammu and Kashmir are reported to be the only two States rooting for April 1 rollout of GST. All the other States have expressed themselves in favour of a delayed rollout, probably in April, 2011. The 13th Finance Commission, which had come up with the proposal for a uniform GST rate of 12 per cent—comprising a concurrent levy of 5 per cent by the Centre and 7 per cent by the States, had suggested October 1 as a possible launch date. But this proposal has also met with resistance as that would mean introducing the new tax regime midway through fiscal 2010-2011. The States are also arguing for a dual tax structure with multiple slabs.

There are both financial and political compulsions for Kerala’s eagerness to see the launch of GST in April next. From the fiscal perspective, there is the prospect of the State benefitting substantially from the new tax regime, with some estimates suggesting a 10 per cent increase in tax revenue merely on account of GST. Given the tough fiscal situation expected in 2010-2011, the LDF government would like to see sufficient money in its coffers so as to meet all its welfare and development commitments in an election year.

Finance Minister T. M. Thomas Isaac has been lobbying strongly for early launch of GST and had told a workshop on GST here recently that the State was well-prepared for the changeover by April next. But he also seemed a wee bit disappointed that GST might be slow in coming as the differences between the Centre and States on many contentious issues have refused to go away despite several rounds of discussions.