Finance Minister Pranab Mukherjee may meet State finance ministers next week to discuss their requirements and implementation of proposed Goods and Services Tax, speculated to be delayed by over six months, is likely to be discussed during the meeting.
“The Union Finance Minister will meet State finance Ministers on January 13 as a pre-budget exercise,” an official said.
Among other things, the meeting is also likely to discuss issues pertaining to implementation of GST, which is likely to be delayed by at least seven to eight months, he said.
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The government had proposed to introduce GST from April 1, 2010, but it would not be possible as the constitutional amendments, necessary for introduction of the new tax structure which will subsume levies like excise, VAT and service tax, would take seven to eight months.
The government, the official said, may not introduce the amendment bills in the forthcoming Budget session as there is no consensus among the states on rates and modalities of the new tax regime.
States, which have been clamouring for more funds to tide over the financial difficulties following the economic crisis which had hit revenue collections, will also raise the issue of compensation on account of phasing out of the Central Sales Tax (CST).
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The government reduced the rate of CST, a tax on inter-state movement of goods which goes to states, to two from four per cent in June 2008 and proposed to eliminate it with the implementation of the GST.
The states wants that centre should fully compensate them for the revenue loss on account of reduction of CST.
While the total compensation package for the States works out to be Rs. 14,000 crore for the current fiscal, Rs. 5,000 crore will be paid out of the total transfer of proceeds from tax on 33 services to the states.
This would leave Rs. 9,000 crore of compensation to be paid to the states, on which the Finance Ministry has asked states to take Rs. 4,500 and rest will be paid as arrears.
The CST was cut from four per cent to three per cent from April 1, 2007 and then to two per cent a year later. It is expected to be removed, once the Goods and Service Tax comes into effect, as it does not conform to the common market concept of either VAT or GST.