Centre, States will negotiate on broad contours of GST Bill early next month

To resolve pending issues around the Goods & Services Tax, the Centre will discuss the broad contours of the draft Constitutional Amendment Bill with States on December 12. There are three key issues on which States are yet to agree: the threshold, compensation, and whether to bring petroleum products under the GST regime.

The Government plans to re-introduce the Bill in the ongoing Winter Session of Parliament so that it taken up for consideration and passage in the next session.

“After taking the Cabinet nod, once the Bill is introduced, it is unlikely to be referred to the Standing Committee on Finance. The Standing Committee has discussed and given its report during the 15{+t}{+h} Lok Sabha, so there is no need to resend the Bill to it,” a senior Finance Ministry official told BusinessLine .

The earlier Bill introduced by the UPA Government lapsed with the dissolution of the 15{+t}{+h} Lok Sabha.

The threshold in the Bill is proposed as a limit beyond which an entity will be subject to GST. Once a business entity exceeds the fixed turnover, it will have to pay GST. The Empowered Committee of State Finance Ministers, in its meeting on August 20, had agreed to a threshold of ₹10 lakh for general category States and ₹5 lakh for special category and North Eastern States.

However, the Centre had said that this limit was too low and wanted it raised to ₹25 lakh. In fact, the Finance Ministry wrote to the Empowered Committee to reconsider its decision, but the Committee stuck to its decision. Now, the Ministry is hopeful of reaching a solution as many States are in favour of a higher limit.

In lieu of the phasing out of the Central Sales Tax (CST) the States want compensation amounting to almost ₹33,000 crore. States want to bring compensation into the Constitutional Amendment Bill but the Centre has not agreed to this demand. It, however, plans to provide ₹12,000 crore as a first instalment of dues in the supplementary demand for grants during the ongoing session. The Centre is also looking at putting in place a separate legal mechanism for compensation.

While the States want to keep petroleum products out of the GST net, the Centre plans to keep it within the GST. The Centre wants to do so with a ‘nil’ rate, giving flexibility to both the Centre and States to impose duties over and above GST. Currently, the Centre levies customs and excise duties on petroleum products while States impose sales tax on these products.

Meanwhile, both the Centre and States seem to be in agreement on keeping alcohol outside the GST regime.

Tobacco is also likely to be kept out from GST.

GST will subsume central indirect taxes such as Central Excise Duty and Service into Central GST (CGST) and various State levies such as VAT and Central Sales tax into State GST (SGST).

This indirect tax reform has already missed several deadlines after the original proposed date of April 1, 2010.

The new date being targeted is April 1, 2016.

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