Centre relents; GST not to have a uniform rate

The proposed Goods & Services Tax (GST) on Tuesday got a fillip, with the Centre relenting on some key demands of states and paving the way for implementation of the indirect tax reform, albeit in a diluted form. Though no rollout deadline was given, many state finance ministers said the government at the Centre after the 2014 general elections should decide on the issue.

A day after clearing Rs 34,000-crore (Rs 340 billion) Central Sales Tax compensation to states, the Centre on Tuesday agreed to make changes to the Constitution Amendment Bill for GST.

Instead of its earlier proposal of uniform GST rates across the country, the Centre agreed to fix a floor rate of taxation, with a narrow band, besides giving states the flexibility to opt out of the tax system later, if they wanted to.

Also, in a deviation from its earlier stand, it agreed on a phased rollout of GST, as in the case of value-added tax earlier. This means only states that are willing would embrace GST from the beginning. Others could join later.

“This was a historic meeting, as we moved forward on many issues. There is a consensus on GST design,” Sushil Modi, chairman of the empowered committee of state finance ministers said at the end of a two-day meet.

Some state FMs said every state had its own problems and arriving at a consensus would be difficult. They indicated since general elections were due next year, the Opposition would not let the UPA government take credit for introducing the tax reform.

“The new government should take a call on GST after the 2014 elections. The GST design BJP wants will be friendly to states,” said Madhya Pradesh Finance Minister Raghavji.

Petroleum products would be part of GST but kept out of the Constitution Amendment Bill, so that the Bill does not have to be changed every time there is a change in these items.

Sections proposing a dispute settlement authority would be removed from the Bill. The GST Council would evolve a mechanism for dispute resolution. The quorum for holding meetings of the council would be raised to half the members from a third.