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States reject GST draft bill over Centre's veto powers

Special Correspondent

They are apprehensive of infringement on fiscal autonomy: Asim Dasgupta

NEW DELHI: In a fresh setback to the proposed rollout of the Goods and Services Tax (GST) from the next fiscal, the States on Wednesday rejected the draft Constitution amendment Bill in its present form. For, it seeks to provide the Centre veto powers over indirect taxation matters pertaining to the States.

Even as Union Finance Minister Pranab Mukherjee made a fervent appeal in the Lok Sabha for the wholehearted cooperation of all political parties in approving the Constitution amendments that are necessary for ushering in the new indirect tax regime from April 1, 2011, the State Finance Ministers, at an Empowered Committee meeting, felt that giving the Union Finance Minister veto powers would dilute their fiscal autonomy.

Briefing the media, Empowered Committee chairman Asim Dasgupta said: “The draft Constitution amendment Bill in its present form is not acceptable to the States...States in general have reservations about the Union Finance Minister having any veto power over State GST. The Union Finance Minister, of course, would have an exclusive authority with respect to Central GST.”

As the GST regime was to replace the excise duty and service tax at the Central level and the Value Added Tax (VAT), cess, surcharges and other local levies at the level of States, the States were apprehensive of infringement on their financial autonomy and therefore had certain reservations about the Bill's provisions for a GST Council and a GST Disputes Authority, Dr. Dasgupta explained.

In fact, the States are of the view that the GST Disputes Authority should not find a place in the Constitution amendment Bill, and it may be incorporated in GST legislation.

“So, how to handle a situation where the State GST and the Central GST would be there and will have to be appropriately and acceptably handled?” While they were opposed to certain clauses of the draft Bill, the States were ready to accept the provision empowering the Centre to levy tax in the Concurrent List, Dr. Dasgupta pointed out.

“That part of the constitutional amendment suggested is acceptable to States, but not the Bill as a whole.” To work out consensus on these issues, the States require more time but are eager to have a meeting with Mr. Mukherjee as soon as possible.

‘Another paper needed'

Asked whether further discussions would delay the GST rollout, Dr. Dasgupta said: “I did not say that.” However, he noted, another discussion paper on the draft GST Bill might be required.

“We may need to have a second discussion paper quickly circulated,” he said, “especially when Mr. Mukherjee has talked about including petroleum products in the new tax regime to hold the price line.”

These differences did not mean that the States wanted the introduction of the draft Bill deferred to the winter session. “We are only saying that the GST amendment Bill should be retained in a proper manner and taken together; officials of the Union and States can do a very quick job. There should be an attempt made wholeheartedly [to have the Bill passed in the monsoon session],” Dr. Dasgupta said.

Some BJP-ruled States, however, are not as optimistic. “It is impossible to introduce GST from April next,” Madhya Pradesh Finance Minister Raghavji said.

Pointing to the strong opposition made by the States, he said: “Everybody is opposed to the veto power of the Union Finance Minister...We need more time. The States' autonomy and federalism will be destroyed [if we accept this Bill]. This is against the fiscal autonomy of the States. A majority of the States — BJP-ruled and others like Uttar Pradesh, Tamil Nadu and Orissa — are also against it.”

Gujarat Finance Minister Saurabh Patel went a step further: “In the present form it [Constitution amendment Bill], will not come in the monsoon session. The Centre should allow the States to be empowered. If they don't allow this, GST is dead.”

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