Consensus failure make States drop constitutional amendments

GST: Consensus failure make States drop constitutional amendments

NEW DELHI: Failing to reach a consensus on constitution amendment, needed to roll—out GST, state finance ministers have decided to drop it from the agenda of their meeting tomorrow and will deliberate instead on structure and rates of the proposed indire ct tax system.

“The constitution amendment to implement GST is not there on the agenda of Empowered committee of state finance ministers meeting on Monday,” a key source told PTI.

The dropping of crucial issue of constitution amendment would further delay the introduction of Goods and Services Tax (GST), which is likely to miss the deadline of April 1, 2011.

Constitution amendment is needed because under the current scheme of things the Centre cannot impose tax beyond manufacturing and states cannot impose service tax.

Now, the state finance ministers will discuss the GST structure, the rates for GST and Central Sales Tax (CST) compensation issue.

CST, a tax on movement of goods from one state to another, was reduced from 4 per cent to 3 per cent in 2007-08 and further to 2 per cent in 2008-09 after the introduction of VAT as it is considered distortionary.

In July, Finance Minister Mr Pranab Mukherjee had proposed a three-rate structure for the Goods and Services Tax that will simplify the indirect tax regime. Under this, goods will attract 20 per cent levy, services 16 per cent and essential items a conce ssional 12 per cent.

The state finance ministers were discussing the GST constitution amendment in their last few meetings but they failed to build consensus, as states and Centre stuck to divergent views. Even states had disagreements on the issue.

The GST will subsume indirect taxes like excise duty and service tax at the central level and VAT on the states front, besides local levies.

A draft constitution bill proposed by the Centre to states has suggested a council chaired by Union Finance Minister with states as members to make changes in GST.

The states had raised objections on the proposal on the plea that it would give veto power to Union Finance Minister over states taxation issues.

The Centre provided another draft to states, suggesting that changes in GST could be made only if there was consensus on those issues in the council.

However, some state finance ministers did not agree to even this suggestion and proposed an alternative model.

They suggested the current Empowered Committee of state finance ministers be enlarged and the Union Finance Minister be made its chairman.

As such, the whole issue of constitution amendment has been dropped from tomorrow’s meeting. - PTI