Finance ministry hopeful of breaking GST deadlock

NEW DELHI - The finance ministry is hopeful of building a consensus on the goods and service tax (GST) as the Empowered Committee of State Finance Ministers met in Goa Friday to give their feedback to the latest draft proposal on tax reform.

“The empowered committee is meeting today. I am hopeful there will be a consensus which we can accept and bring in the GST some time in the next financial year,” said Revenue Secretary Sunil Mitra at the sidelines of a Federation of Indian Chambers and Commerce Industry (FICCI) conference on tax reforms here.

The states have been presented with a second draft as the first draft was rejected even by Congress-ruled states.

“We are expecting them to give us a counter of the draft GST amendment bill, or whatever passes muster or has consensus among states. When we get that we shall respond,” Mitra added.

The revised draft of the Bill, that ensures fiscal autonomy to the states by making the decisions of the proposed GST Council recommendatory and not binding on them, is expected to be tabled in the budget session of Parliament beginning February 2011, said Mitra.

Under the GST framework, taxes would be levied by the states and the federal government on manufacture and sale of good and provision of services. This requires an amendment to the constitution.

The state finance ministers are expected to suggest an alternative draft under which two mechanism of the reform would be dropped, namely the GST Council — the first being a mechanism to suggest the rate of taxation and a Dispute Settlement Authority.

“GST council is aimed to bring uniformity in exemptions, turnover thresholds rates. It is the variance in all of these which today makes State taxes complex and cascading,” said Prashant Deshpande, Leader - Indirect Tax, Deloitte in India.

“For GST to succeed there must be a governing body with enough teeth that will be able to restrict errant States from the weakening the principles upon which the GST framework would be founded,” added Deshpande.

A majority of businesses want a single rate of goods and service tax (GST), both at the state and federal level, and expect the tax reform to have a positive impact on profitability.

Mitra also said the parliamentary standing committee on finace is examining the draft direct tax code (DTC) bill. “We hope to get the standing committee’s comments by February or March 2011 and expect to get parliamentary approval in the monsoon session,” he said.