GST - Amma wants an independent compensation mechanism and methodology for revenue losses suffered by the States
IN a letter to the Finance Minister yesterday, Tamil Nadu Chief Minister Jayalalithaa made several suggestions and raised apprehensions about GST.
Her Suggestions:
1. States should be allowed to grant exemption on all goods of local importance without any restrictions.
2. To avoid dual control, States should be vested with the control of dealers having a turnover up to Rs.1.5 crores both for intra-State and inter-State supply of goods and services, whereby the Centre can avoid expanding its administrative machinery while collecting CGST from such dealers.
3. Petroleum and Petroleum products should be kept completely outside the ambit of GST.
4. States should also be empowered to levy higher taxes on tobacco and tobacco products on par with powers proposed to be vested with the Centre to levy Excise Duty on tobacco and tobacco products in the draft Bill.
5. All the States may be permitted to retain the entire 4% of the CGST part of the IGST on all inter-State sales without crediting any amount to a compensation fund. This will enable a substantial reduction in the compensation payable to the States.
6. An independent compensation mechanism and methodology for revenue losses suffered by the States is an essential prerequisite for implementation of GST. It is understood that officials of the Government of India have suggested a separate legal provision for compensation, as part of the enabling GST Legislation. A mere legal provision will not serve the interests of the States.
7. Before the enactment of the Constitutional Amendment Bill on GST is taken up, the Government of India should strive for a broad consensus on the important issues relating to GST like compensation period and methodology, revenue neutral rates, floor rates with bands, commodities to be excluded from GST, IGST Model and clarity on dual administrative control, so that the genuine apprehension of the States over loss of fiscal autonomy and permanent revenue loss are allayed.
Apprehensions:
1. The proposal of the Government of India to bring petroleum products under the ambit of the Goods and Services Tax is another area of concern which would seriously diminish the limited revenue resources of the States.
2. The proposed system of dual levy wherein the States will also be empowered to continue the existing levy of tax on the sale of petroleum products in addition to the levy of GST is not acceptable, as a portion of the tax on petroleum products would still be eligible for Input Tax Credit.
3. Tamil Nadu has strong misgivings about the latest suggestion of the Government of India that the GST component of the levy on petroleum products can be at a very low rate or even zero-rated for an initial period of at least 3 years to avert any possible sudden revenue loss to the States.
4. There is no certainty that, in a period of three years, the revenue gain on account of levy of tax on services and on import of goods would be substantial enough to offset the revenue loss on account of bringing petroleum products under the ambit of GST nor is there any guarantee that GST will not be prematurely imposed on petroleum products.
5. The "Place of Supply of Service Rules" which are to be framed will also play a vital role in estimating the tax revenue from services to the States. Without finalizing these important elements, it may not be feasible to accurately calculate the State-wise Revenue Neutral Rates.
6. It cannot be denied that manufacturing States like Tamil Nadu stand to permanently lose substantial revenue if GST is implemented, due to the sudden shift of levy from the point of origin to the point of destination.
7. In addition to the revenue loss arising out of phasing out of CST and transfer of Input Tax Credit on inter-State Sales and inter-State Stock transfers, the State also stands to lose substantial revenue arising out of subsumation of other taxes such as Entertainment Tax, Luxury Tax, Entry Tax on Vehicles and Betting Tax.
She has sent a copy of her letter to all the Chief Ministers with a hope that they will agree with her views that, before enactment of the Constitutional Amendment Bill on GST is taken up, the Government of India should strive for a broad consensus on the important issues relating to GST without compromising the fiscal autonomy of the States.
Will anybody from CBEC allay her doubts? The Board seems to be far away from GST legislation.
You can read the full text of her letter here.