Centre rejects GST's alternative model

October 01, 2010 01:52 am | Updated November 17, 2021 05:23 am IST - NEW DELHI:

The Centre has rejected the alternative model of Goods and Services Tax (GST) suggested by the empowered panel of State Finance Ministers and a few BJP-ruled States, which was suggested as a strategy to obviate the need for amendment to the Constitution.

“We have regretted our inability to accept either the suggestion of Madhya Pradesh, Gujarat or the chairman of the empowered committee because they do not, in our opinion, allow the essential features of GST to operate… We will not take it [GST] forward without constitutional amendment,” Revenue Secretary Sunil Mitra said, while speaking to the media on the sidelines of an interactive session on the Direct Taxes Code (DTC) organised by the Confederation of Indian Industry (CII) here on Wednesday.

The alternative model put forward by Empowered Committee of State Finance Ministers' Chairman and West Bengal Finance Minister Asim Dasgupta suggested that State governments be allowed to impose service tax without constitutional amendment.

Madhya Pradesh and Gujarat viewed the Centre's proposal on constitutional amendment as an encroachment on the fiscal autonomy of States and, therefore, suggested alternatives to leave the State governments free to levy service tax without the amendment.

Mr. Mitra noted that only if a consensus emerged on the amendment Bill — to be considered by the empowered panel at its meeting in Goa next month — the legislation could be tabled in the winter session of Parliament. “Only then, I can take the legislation to the winter session and though it will be set back by a few months, it can become operative from mid-next year,” he said.

At the interactive session, Mr. Mitra said that although the government had accepted the industry's demand on the issue of minimum alternative tax, imposing MAT on gross assets was a better option than basing it on profits. “MAT is an effective way to ensure optimum utilisation of assets to make it asset based. I still think it is the best thing to do but if you are not ready for it, we are not pushing it now, may be it will come later,” he said.

Key objective

Mr. Mitra said the key objective of the DTC was not to reduce tax rates, but to bring about transparency, continuity, consistency and predictability in India's tax regime, which is in the interest of domestic and foreign investors and industry. Commenting on the higher corporate tax rate of 30 per cent in the revised DTC draft, as against the 25 per cent proposed in the first draft, he said it was largely owing to the likely revenue shortfall that MAT is not applicable on assets, but on book profits.

During the interaction, the Revenue Secretary urged the CII to help bring convergence on GST among the States, since talks at the empowered committee level and those between the Central and State governments had not yielded the desired results yet. The Centre, he said, was in favour of implementing both the GST and the DTC at the same time.

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