Policy bottlenecks may further delay GST rollout

CA Manish K Dhoot (CA, B. Com, NCFM, CPCM) (5015 Points)

21 August 2010  


A few months ago, Gujarat Chief Minister Narendra Modi walked up to Finance Minister Pranab Mukherjee and said: “Gujarat is awaiting the Goods and Services Tax (GST) eagerly.” On Tuesday, at a meeting of state finance ministers where it was decided that a decision on GST would be deferred by a month, possibly leading to an indefinite postponement in its rollout, BJP-ruled Gujarat was at the forefront in opposing the tax in its present form.







“We think it has something to do with the arrest of Amit Shah (former Gujarat home minister who is under the CBI scanner for a fake encounter),” said the finance minister of another BJP-ruled state, which is supporting GST.

“We do not have any problem with GST,” Deputy Chief Minister and Finance Minister of Bihar, Sushil Kumar Modi told Business Standard. “We are ready for it, but first New Delhi has to promise us that it will compensate the loss of revenue due the implementation of the GST. Bihar alone will lose more than Rs 1,000 crore by abolishing the entry tax after GST is implemented,” he said.



Modi put his finger on it: “You cannot just ignore the concerns of big states like Madhya Pradesh, Uttar Pradesh or Tamil Nadu. Their voices must be heard and their concerns must be addressed.”

Madhya Pradesh Finance Minister Raghavji had objected to the proposed GST structure, saying that it curtails the autonomy of states and does not respect the spirit of consensus in its present form.

The Union finance minister heard this and said states would get a month’s time to study the latest draft. But after that, they should agree, he told the ministers at the meeting.

However, most finance ministers agree that it will not be possible to pass the draft Bill on GST in the current session of Parliament. The next round of discussion will be held next month; however, the monsoon session will end later this month.

Sources present in the meeting said provisions of the draft Bill that propose the abolition of entry tax was a major hurdle. This was strongly opposed by many states, including Madhya Pradesh, Tamil Nadu, Uttar Pradesh, Uttarakhand and Orissa. After heated arguments, the Union government agreed it would come up with another amendment to the draft Bill. They say the central government has not given any deadline for the amended draft.

It is now clear that Gujarat led the charge against the government proposal. The government will have to use every lever it has to get the states to fall in line.