Just like all other years, year 2010 had also passed. We all would recall this year for different reasons and at different points of time in our life but our Finance Minister would definitely recall this and that too for an important reason i.e. Goods and Services Tax. All the efforts of Mr. Mukherjee to bring the Consensus between the States Government and the Centre were useless as instead of reaching to consensus, areas of differences between them increased to a greater extent.
If all went right between the States Government and the Centre in the previous year then our Finance Minister Mr. Pranab Mukherjee can be seen as busy in giving a final touch to the new sensation in the Indirect Taxes i.e. Goods and Services Tax. But all went in contrary to his expectations. Even those issues which were almost settled between the Centre and the States, again comes upfront as a core area of difference between them. As a result of all those differences, Mr. Pranab Mukherjee finally announced the further postponement of GST. Now he is looking forward to roll out the Goods and Services tax simultaneously with the Direct Taxes Code (DTC) from April 1, 2012. The original plan of the Finance Ministry for the Goods and Service Tax was to bring the Constitution Amendment Bill in the monsoon session of the Parliament and from there it would have been referred to the standing committee. After all the comments from the Parliamentary panel, the bill could have been placed in the winter session. If it passed in that session, GST legislation could have been tabled in the Budget Session. This plan became the thing of the past and now our Government is looking forward for a new plan that might help in the successful rolling out of the Goods and Services Tax.
Now lets have a look on some of the key issues which are creating a hurdle in the rolling out of the Goods and Services tax:
1. Constitution Amendment Bill: Constitutional Amendment Bill is required to give powers to states to levy Service Tax and the Centre to impose tax beyond the production stage. Currently, the Centre can impose tax on goods at the factory gate and services while states can impose tax at the retail level on goods. The Centre has framed a draft Constitution Amendment Bill for the roll out of the Goods and Services Tax. The first draft on the Constitution Amendment Bill was rejected by the Empowered Committee of the State Finance Ministers because it proposed to give Veto Power to the Union Finance Minister on the State taxation issues. However, the revised draft from the Finance Ministry drops the main issue of giving Veto Power to the Union finance Minister and said that the Council could take a decision only when there is a Consensus. But the BJP-ruled States along with some of the allies of the UPA, have been opposing the revised draft of the Constitutional Amendment Bill on GST. They are favouring the phased approach for amending the Constitution. In the phased approach, the main focus is on allowing the Centre and the States to share their tax base and for this only initial amendments will be made to the Constitution. However, the two main pillars of the Goods and the Services Tax i.e. GST Council and the Dispute Settlement Authority will be kept outside the Constitution to start with and if required, both could be given a Green signal with Constitutional Amendment at a later stage.
2. Dispute Settlement Body: On the issue of Dispute Settlement Body, the States are demanding that they should be individually allowed to make laws on the creation of such a body, instead of the Centre setting it up through an amendment to the Constitution. The States are basically looking to protect their fiscal autonomy which they think will get affected in the new tax regime.
3. Threshold Level: The Centre wants to have a uniform limit of threshold for GST. On the other hand, states want different threshold level for SGST and CGST. The states have been asking for a threshold of Rs 10,00,000 for SGST and Rs 1.5 crore for CGST .
4. GST Structure: In July, Mr. Pranab Mukherjee proposed a three-rate structure for the Goods and Services Tax -- which will simplify the indirect tax regime -- under which goods will attract 20 per cent levy, services 16 per cent and essential items a concessional 12 per cent. Most states seemed to have no issue with the rates. However, Mr. Dasgupta said the rate structure would be discussed further, as some states were asking for more time to consider that structure. Some states were asking for a band of two per cent over and above the proposed rates so that they could have some flexibility to increase rates in the future.
However our Finance Minister said that in order to accommodate the concerns of the state governments, the Centre is willing to consider a phased approach to the introduction of GST and are also willing to accept a dual rate structure that could eventually lead to a model GST regime.
Now we can only hope that this New Year will bring an end in sight to the differences between the Centre and the States over the model required for the introduction of the Goods and Services Tax.