Taking an unrelenting stance, state finance ministers on Monday decided to ask finance minister P Chidambaram to revise the Constitution (115th Amendment) Bill to keep taxes on petroleum products, liquor and entry of goods out of the proposed goods and services tax (GST) and make a Constitutional provision for compensating states for any loss of revenue from introducing the new unified indirect tax.
If the Centre accepts these recommendations (which seems unlikely), GST will have certain distortions in design, undermining its ability to boost the economy. A continuing discord between the Centre and states would put the GST implementation, already delayed inordinately, in limbo.
The empowered committee (EC) of state finance ministers, which met here to finalise its views on the Bill that redefines the taxation powers of the Union and state governments, decided to recommend to the central government changes in crucial provisions. These recommendations are mainly aimed at protecting states’ fiscal autonomy. Voting rights in the proposed GST Council, an advisory body, the states contend, should be dispersed enough to safeguard their fiscal independence.
“Our country is essentially a federation. Nothing in the Bill should go against the spirit of cooperative federalism,” Jammu and Kashmir finance minister Abdul Rahim Rather told reporters after the meeting.
States have unanimously decided that fuel and liquor should be kept out of GST. The EC has also decided to recommend to Chidambaram that the Bill should not have any provision for declared goods, on which states will have to levy a lower rate of tax than the standard rate, as in the case of value-added tax. “The government of India should not have the power to provide for declared goods under GST,” Rather said.
Earlier, the Centre had considered a proposal to allow states to levy a non-VATable tax on petroleum products over and above GST to get them on board for inclusion of these products in GST. The Centre reckons that keeping petroleum products outside GST would mar the regime, whose basic tenet is avoidance of cascading of taxes in B2B transactions.
The committee has also decided that entry taxes should not be subsumed into GST. This is a departure from the consensus arrived at on July 22 at a meeting in New Delhi.
Rather said that the final Bill should restore the clause in the original draft, which said that entry taxes, where it is levied in lieu of octroi, the