States welcome GST but some issues need to be sorted out, says Mani

The Empowered Committee of State Finance Ministers will convey its views on the Constitutional Amendment Bill for introduction of GST to the Select Committee on June 16. The Select Committee of the Rajya Sabha is looking into the various aspects of the Bill. The empowered panel held a meeting here on Thursday.

Briefing the media after the meeting, the panel’s Chairman and Finance Minister of Kerala KM Mani said that States welcome GST but have some issues with it. He said member States have expressed their concerns, all of which will be compiled and presented to the Select Committee. After consultations with various stakeholders, the Parliamentary panel is expected to give its report on the first day the Monsoon Session.

Three issues Talking about specific issues, Mani said that the States have concerns over compensation.

“They want full (100 per cent) compensation for five years,” he said. Compensation is given to make up for losses, if any, after GST implementation. The present Bill talks about 100 per cent compensation for the first three years, then 75 per cent in the fourth year and 50 per cent in the fifth year.

The second issue is related to tobacco and tobacco-related products. “Some States asked for imposing additional tax on these over and above the GST,” Mani said. The Bill has kept these demerit goods within GST, but only the Central Government will continue levying tax on them. It may be noted that Tamil Nadu is more vocal against this provision and wants States also to be allowed to levy tax.

The third issue is about imposition of additional one per cent tax by manufacturing States over and above GST. Some States (especially consuming ones) said “It will have cascading effect and is against the basic principle of GST.”

Apart from these three issues, some States expressed reservations against the abolition of entry tax while some did not want the scrapping of purchase tax. The Bill has proposed subsuming all these levies in the GST.

When asked, whether he is confident about implementation of GST from April 1 next year, even as the Centre has to resolve many issues within a very short time, Mani said, “Yes.”

However, he made it clear that the Committee did not discuss ‘Revenue Neutral Rate (RNR).’ RNR is the rate of tax at which States will not have any revenue loss.

An expert panel suggested 27 per cent RNR which would mean that both goods and services will attract 27 per cent GST. The global average of GST rate is 16.4 per cent. Finance Minister Arun Jaitley, himself, indicated that 27 per cent rate would not be accepted as it is too high.

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