Bengal, Kerala protest against an amendment to GST

The amendment went against basic design that all taxes of the Union should form part of divisible pool and should be shared with States, said the Kerala Finance Minister.

Updated - December 04, 2021 11:01 pm IST

Published - August 05, 2016 01:58 am IST - New Delhi:

Hours before Union Finance Minister Arun Jaitley had spoken of the headaches in implementing the Goods & Services Tax (GST) issues had begun to crop up.

In what could be the very first such headache for him, the Chairman of the Empowered Committee of State Finance Ministers on the GST, West Bengal’s Amit Mitra, and the Finance Minister of Kerala, Thomas Isaac, have written to Mr. Jaitley, complaining about an amendment to the Bill that the Rajya Sabha passed on Wednesday for amending the Constitution to pave the way for the roll-out of the new tax departments from the consensus reached between the Centre and the States.

Speaking in the Rajya Sabha on Wednesday, Mr. Jaitley quipped in response to his predecessor P. Chidambaram’s plea — the government must keep the indirect tax low to protect the poor — that “Being former Finance Minister is a luxury, implementing GST a headache.”

Mr. Mitra wrote to Mr. Jaitley against the change in Article 270, appearing in Clause 10 of the proposed amendments to the Bill, as it would deprive the States of the share of the IGST (Integrated Goods and Services Tax) revenue of unclaimed credits in transactions, not forming part of the “divisible pool” of tax revenues.

The empowered committee’s objections to the amendment were raised at the time of voting on it in the Rajya Sabha. Mr. Jaitley, however, told the House that the matter was discussed at the “official's level”, without discussing details.

The IGST is proposed to be collected by the Centre on all inter-State supplies of goods and services and would roughly be equal to CGST (Central GST) plus SGST (State GST). Since GST is a destination-based tax, all SGST on the final product will accrue to the consuming State.

The amendment pertaining to it, “has never been discussed in the EC [Empowered Committee] and as such there is no consensus on it,” Mr. Mitra wrote to Mr. Jaitley. He requested that it be dropped.

Mr. Isaac also sought the deletion of this amendment. He wrote to Mr. Jaitley that the EC had decided in 2014 that unclaimed amounts in the IGST account would be shared as per the Finance Commission’s formula for the States’ share in the divisible pool of central taxes.

The amendment, he said, went against the basic design that all taxes of the Union in any given year should form part of the divisible pool and should be shared with the States.

It “departs from the consensus arrived at the Empowered Committee of State Finance Ministers, much to the detriment of the interest of the States,” according to Mr. Issac.

Asked about the letters, a senior Finance Ministry official confirmed that they were received, and added that the issue was minor.

Mr. Mitra also sought a further clarification, by way of a statement from Mr. Jaitley on the floor of the House, that the States will be paid “full” compensation for a period of five years for revenue losses on account of the transition to the GST.

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