The Tamil Nadu Government has expressed strong reservations to the proposed enactment of the legislation relating to Goods and Services Tax (GST) and has sought the Prime Minister's intervention to ensure greater consultation.

In separate letters to the Prime Minister, Dr Manmohan Singh, and Chief Ministers of non-Congress State Governments on August 18, copies of which were released to the media, Ms Jayalalithaa has said the Constitution (115th Amendment) Bill, 2011 introduced in the Lok Sabha during the budget session encroaches on States' rights and could adversely impact their revenue-generation capacity. Ms Jayalalithaa has asked other State Governments to take up the issue with the Centre.

Centre encroaching

In the letter to Dr Singh, Ms Jayalalithaa conveyed the Government's reservations on the “manner in which the Government of India is endeavouring to bulldoze through this piece of Legislation which encroaches upon the powers vested with the States by the Constitution of India”.

Constitutional mechanisms like the GST Council and the GST Dispute Settlement Authority impinge on the legislative sovereignty of both the Parliament and the State Legislatures. Tax reforms driven by the Centre should neither reduce the revenue flow from sales tax, the major source of revenue, nor adversely affect the fiscal autonomy.

In the name of harmonisation of tax rates, the State's authority to levy taxes should not be snatched away. Adopting a common rate for all commodities across the country when the States have diverse resource bases and requirements cannot be the solution. GST with two rates initially, converging into a single rate, is not workable.

In States like Tamil Nadu, where the tax-neutral rate is as high as 17 per cent, this will lead to a huge losses of more than Rs 5,000 crore a year.

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