GST Council not to Disturb or Alter Primacy of Legislature in the area of Taxation: FM – Shri Mukherjee calls Upon the State Finance Ministers to make all efforts to meet the timelines of Introduction of GST by april 2011 – FM’s Address at meeting with Empowered Committee of state Finance Ministers – Dated:- 18-8-2010 – The Union Finance Minister Shri Pranab Mukherjee had a meeting with the Empowered Committee of State Finance Ministers to finalize the draft Constitutional Amendments on Goods and Services Tax, here today. Addressing the meeting, the Finance Minister emphasized that the primacy of the Legislature in the area of taxation is supreme and inalienable and that the proposed draft on GST did not seek to disturb or alter this in any manner. Highlighting the importance of the GST Council, Shri Mukherjee said that the collective wisdom of the Council would be a valuable resource in benchmarking rates, exemptions, thresholds and other key parameters for both the Centre and the Sta
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011 deadline. During our last meeting on the 21st of July, 2010 I had shared with you the first draft of the Constitutional Amendment required for the introduction of GST which was prepared by the officials based on discussions in the Joint Working Group. I have been informed that the Empowered Committee held intense discussions on this draft in its meeting on the 4th of August, 2010. Similarly, the second revised draft has been discussed at length in the meeting of the Empowered Committee held this morning. My team has apprised me of the views expressed by the States in these meetings. I am aware, therefore, of the apprehensions that most of you have voiced regarding the proposed amendments. Based on feedback I received, it seems that your deepest concern has been the perceived sacrifice of fiscal autonomy owing to two provisions in this draft – one, the role of the GST Council and two, the so-called 'veto' power assigned to the Union Finance Minister as the Chairperson of the
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ll the States are not similar. It was perhaps in recognition of this fact that our Constitution makers erected a federal structure that leans in favour of the Centre at least in the area of fiscal relations. It was in this background that the scheme of functioning of the GST Council in the proposed draft envisaged a slightly larger role for the Centre vis-a-vis the States. The binding nature of GST Council decisions has also drawn comment from the perspective of loss of autonomy. Although the loss of autonomy was clearly bilateral and mutual, the problem we are faced with is a difficult one. On the one hand, we wish to put in place a system where adherence to the commonly accepted structure of rates, exemption etc. would be the norm, yet we do not wish to be fettered in our actions. Recognising this dichotomy, it has been proposed in the revised draft that the decisions of the GST Council would be recommendations to the Union and the States. Since these decisions would be taken by cons
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ement Authority. It is our considered view that in the amendment, there should be a provision for setting up an independent and autonomous forum to resolve disputes which may arise due to rate variations which may violate the harmonized structure of GST. With your rich experience in the introduction and implementation of VAT, a moment's reflection would convince you of the need for such a mechanism. I recognize that this is uncharted territory for all of us. But that should not make us oblivious of its genuine need. Apart from these substantive issues, some of the States have expressed concerns about the subsumation of taxes such as entry tax and entertainment or amusement tax levied and collected by local bodies. I am sure, the Joint Working Group set up to draft the Constitutional Amendments will be able to take care of most of these issues when they prepare the third revised draft. I learn that during this morning's discussions, some State Finance Ministers expressed reserva
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tion. I would also like to take this opportunity to inform you that the Empowered Group on IT Infrastructure has already started the work to put in place a common portal for GST and it has also been decided that the proposed Special Purpose Vehicle for IT would be incubated in the National Securities Depository Limited (NSDL). This would fast-track the development of IT infrastructure. CENTRAL SALES TAX (CST) Now we come to the issue of CST compensation. You may kindly recall that the policy intent for the introduction of GST was announced by the Union Finance Minister in his Budget Speech in February 2006. As a step forward, the Union Cabinet approved the roadmap for the phase out of CST in February 2007 on the basis of the agreement reached between Government of India and Empowered Committee of the Finance Ministers of the States. The Union Government agreed to reduce the CST, which comes under the Union List, from 4% in March 2007 to 0% by April 2010. It was also agreed that States
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mmittee requesting for compensation for CST on the basis of the existing formula as also to ensure that no double deduction on account of Form D is made. At this stage, I will only like to highlight the main difference between the last year and the current year which is, while the States had not increased the basic VAT rate from 4% to 5% last year, the EC has taken a decision to do so from the current year. It is only fair that the additional revenue accruing to the States on account of this increase in basic VAT rate from 4% to 5% may also be taken into consideration while reckoning the compensation of CST due from the Centre to the States, as had been agreed to by the EC in 2007. I have asked my officers to call an early meeting of Joint Working Group and complete the consultation process. As regards pending CST compensation claims, I understand that most of the additional amount due on account of the decision to fully compensate the States has been released to all States. It is furt
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