Tamil Nadu

‘GST Bill should include compensation mechanism’

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It will protect the interests of manufacturing States like Tamil Nadu that will lose revenue, Jayalalithaa says in a letter to Modi

Chief Minister Jayalalithaa has reiterated her demand for an independent compensation mechanism in the Constitutional Amendment Bill on the Goods and Services Tax to protect the interests of manufacturing States like Tamil Nadu that will lose revenue if the tax comes into force.

In her letter to Prime Minister Narendra Modi on Monday, she also called for consensus on “key and contentious issues” such as dual rate bands, taxation threshold, an integrated GST model, commodities to be excluded from the GST, clarity on dual administrative control and compensation period and methodology before the Bill was taken up.

Referring to a revised draft of the Bill circulated among the States in June, Ms. Jayalalithaa said there was no mention of a permanent compensation mechanism. The State’s earlier experience with the compensation mechanism for both the VAT introduction and the Central Sales Tax reduction was far from satisfactory. “Hence, it is imperative that an independent compensation mechanism be enshrined in the Constitution itself, and not reduced to an instrument of Union policy which may change from time to time.”

Raising the issue of fiscal autonomy, she said the proposed GST council would override the supremacy of the legislature – both at the Centre and in the States — in taxation matters. “This is unacceptable to Tamil Nadu.”

She said the Bill would not allow the States to levy higher taxes on tobacco and tobacco products.

Reiterating her stand that petroleum and petroleum products should be kept out of the purview of the GST, she said the proposed dual levy of GST and an additional tax was also not acceptable. This was because a portion of the tax on petroleum products would still be eligible for input tax credit (ITC). Bringing these products under the ambit of the GST would mean a huge revenue loss to the States, as the ITC would have to be provided.

Ms. Jayalalithaa said oil marketing companies/refineries were eligible for the ITC to the extent of tax on purchase of crude petroleum from ONGC on the sale of lubricants and commercial LPG. Other petroleum products were non-VAT goods, so they were not eligible for the ITC. Making all petroleum products VAT goods “in order to reduce the subsidy burden of the Government of India” would bring down the States’ revenue. “It is also a precursor to bringing all petroleum products under the GST, and hence, this proposal is unacceptable to Tamil Nadu.”

She favoured a “simpler structure to delegate the levy, collection and appropriation of the substitutes for the VAT, the Central Excise Duty and the Service Tax in a State to the State machinery,” even while allowing the Centre to focus on inter-State taxation. This would also help to preserve the constitutional design of fiscal federalism that left the States in control of at least one sizeable source of revenue.

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Printable version | Jan 19, 2020 2:48:04 AM | https://www.thehindu.com/news/national/tamil-nadu/gst-bill-should-include-compensation-mechanism/article6331126.ece

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