GST rollout may be delayed further

The proposed goods and services tax continues to be ill-fated.

The latest round of dispute cropped up on Monday -- again, between the Centre and states.

This time, it was over compensation to the states on revenue loss due to a cut by half in the central sales tax from the present 4 per cent.

The imbroglio will serve another reason to the rollout of the GST regime, originally slated to begin from April 2010.

In any case, the introduction of the GST, envisaged to replace most of the country's present indirect taxes, from the next financial year looked set for another round of delay, as it is only from January that a parliamentary panel would start discussing with stakeholders the pertinent constitution amendment bill.

The states are angry about having not received CST compensation for 2010-11, according to Sushil Modi, chairman of the Empowered Committee of state finance ministers.

"We are sending a strong-worded letter to the finance minister (Pranab Mukherjee)," he told reporters on Monday.

"This will put a question mark on the credibility of the Centre, because this one thing the Centre committed when we are trying to create a congenial atmosphere for GST."

The CST is a tax on inter-state movement of goods. It was reduced from four per cent to three per cent from April 1, 2007, and further to two per cent over a year later.

It was to be abolished by 2010-11, before authorities ultimately decided to wind it up once the GST was rolled out.

The CST is being removed since it is considered a distortion in the way of the common Indian market.

An effort has been on to create it -- first, through state-level VAT and, now, with the proposed GST.

Since CST means revenues to state, the Centre had agreed to compensate them.

As much as Rs 12,000 crore (Rs 120 billion) has been provided in the Budget 2011-12 as well for this purpose, pointed out Modi, who is Bihar deputy chief minister and finance minister, after on Monday's meeting of the empowered committee.

However, according to him, the Centre has now come out with an argument that

the states that have increased VAT from four to five per cent should be given less compensation. Logic: One should factor into the revenue generated through one per cent increase in the tax.

"Increasing VAT from four per cent to five per cent is the discretion of state governments; four per cent is a floor rate," Modi said. "States are free to increase it. That should not be included as part of compensation."

The Centre has only released Rs 300 crore (Rs 3 billion) to Rs 400 crore (Rs 4 billion) so far to the states for this fiscal. The Union finance ministry has promised states that they would be shortly providing them another Rs 3,000 crore (Rs 30 billion).

Modi said even states like West Bengal and Orissa, which have retained VAT at four per cent, are not being given adequate compensation.

This is "because the Centre is telling them that they should have increased VAT from four to five per cent".

West Bengal Finance Minister Amit Mitra said his state had demanded a Rs 860-crore (Rs 8.6 billion) compensation, even as the Centre has released just Rs 110 crore (Rs 1.1 billion).

The Centre has promised to release another Rs 160 crore (Rs 1.6 billion).

Even so, there is a shortage of Rs 590 crore (Rs 5.9 billion).

Other state finance ministers showed a copy of a discussion paper on the GST.

It carried the Centre's promise to give them compensation for the CST.

So, would this impact the GST rollout, currently slated for April 1, 2012? All Modi would say is that he hoped the issue would be resolved.

Yashwant Sinha, as chairman of Parliament's standing committee on finance, had told him that the panel would -- from January -- start discussion with all stakeholders on the constitution amendment bill in this regard.

"The standing committee took six months discussing direct taxes code with stakeholders. This (GST) is much more complicated than DTC," he added.

When persistently asked for the scheduled timing of the GST rollout, Modi quipped, "You draw your own conclusions".

The rollout of the GST has already missed two deadlines: of April 1 in 2010 and 2011.

Looks April 1, 2012 is going to be another such date.