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The Centre's efforts to achieve a consensus on the proposed Constitutional Amendment to usher in a dual goods and services tax (GST) system has yet again hit a political roadblock. The BJP-ruled States have opposed the latest draft of the Constitutional Amendment Bill, stating that it would destroy their fiscal autonomy.
This was the third draft of the Bill that the Centre had come up with to bring the States on board. A constitutional amendment is necessary for the introduction of GST. The third draft proposes to empower Parliament to constitute the GST council — a proposal opposed by the BJP-ruled States. This proposal is different from the one in the earlier draft, which proposed that the GST Council be set up by a Presidential order.
“This (third draft) will destroy our fiscal autonomy, so we do not accept the constitution amendment Bill for GST,” the Madhya Pradesh Finance Minister, Mr Raghavji, told newspersons after a meeting of the Empowered Committee of State Finance Ministers here on GST.
The Gujarat Finance Minister, Mr Saurabh Patel, said that the new draft is retrograde and completely against fiscal federalism. However, the Haryana Finance Minister, Mr Ajay Singh Yadav, said that there had been lots of discussion on the issue and the Bill should be introduced in Parliament.
A thorny issue
The GST council proposal has been a thorny issue in the earlier drafts too, and was rejected by some States due to structure-related issues. The first draft had proposed that the GST council be headed by the Union Finance Minister. This was opposed by certain States as the Union Finance Minister had the veto power on the GST rates levied by the States.
The Centre agreed to make changes and brought out a new draft that proposed that changes could be made to the GST rates only after consensus in the GST council. However, some State Finance Ministers did not agree to even this suggestion.
Further delay likely
With all the three drafts of the Bill being opposed by many States, there is still uncertainty on the introduction of GST from April 1, 2011. GST has been billed as one of the major tax reform that India had initiated in the last 60 years. After missing the original April 2010 timeline for GST rollout, the Centre proposed to introduce it from April 2011. Indications are that this timeline too would be missed.
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