GST: Centre, states find common ground

Last Updated: Thu, Oct 25, 2012 20:41 hrs

The stalemate between the Centre and the states over the proposed goods and services tax (GST) might soon end, with the Union finance ministry showing some flexibility. The two sides are hopeful of resolving their differences in the next two or three meetings.

After a meeting with Finance Minister P Chidambaram on Thursday, Sushil Modi, chairman of the Empowered Committee of State Finance Ministers, said that the former was very flexible over the contentious issues of compensation to states for loss in revenue, flexibility to alter the rates in GST, and fiscal autonomy.

Modi told reporters: “He seemed to agree with the issues of the states. We are moving forward in the right direction. There is convergence on many of the issues on which there was confrontation between the Centre and states. In the next two or three meetings, we will able to sort out all the differences.”

He said there was an agreement among states that there should be a floor tax rate with a narrow band, and that a package be considered for rewarding states participating in GST. The states have also told the Centre there is no need for a dispute settlement authority in GST. Chidambaram will meet the full empowered committee on November 8 to resolve all the issues.

So far, the Centre was proposing fixed rates for GST across the country. A band giving leeway to the states for some manoeuvring in times of emergency could pave the way for amendments to the Constitution by next year.

However, even after these amendments, GST bills will have to be framed and passed by Parliament and the respective state assemblies.

A huge deterrent in the way of GST is compensation to states for the loss of revenue on account of central sales tax (CST). States, which pegged their CST losses at Rs 19,000 crore for 2010-11, had threatened to derail the GST, if the government did not agree to compensate them.

“We are trying to find ways to compensate states for loss of revenue, which occurred to states due to reduction in CST from four to two per cent. I hope the finance minister, in his next meeting with the empowered committee, will be able to find a solution,” Modi added.

The meeting was also attended by Unique Identification Authority of India (UIDAI) chairman Nandan Nilekani, heading the panel for rolling out technology platform for GST. During the meeting, Nilekani said a chairperson for GSTN (goods and services tax network) would be appointed soon.

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