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December 21, 2014

Now Tamil Nadu opposes Centre`s views on GST Bill

Now Tamil Nadu opposes Centre`s views on GST Bill

The Tamil Nadu government has opposed the Centre’s proposal to introduce a constitutional amendment Bill on a proposed goods and services tax (GST) and reach a consensus on various aspects of the new tax regime, especially the tax rates and bands, through a GST council.

In a letter to the prime minister on Friday, Chief Minister O Panneerselvam said the state government had repeatedly highlighted the impact of the proposed GST on the fiscal autonomy of states, as well as the huge revenue loss such a taxation system was likely to cause to a manufacturing and exporting state such as Tamil Nadu.

He emphasised before the constitutional amendment Bill on GST was taken up, the Centre should strive for a broad consensus on important issues relating to GST, such as the compensation period and methodology, revenue-neutral rates, floor rates with bands, the commodities to be excluded from GST, the IGST (inter-state GST) model and dual administrative control, so that states’ concern about loss of fiscal autonomy and revenue loss was allayed.

The draft constitutional amendment Bill on GST, which the Centre has circulated to states, partially addresses the issue relating to a compensation mechanism. However, concerns remain. “At this juncture, before evolving a consensus on the important issues, attempts are being made to push through the legislation relating to GST, much to the chagrin of states,” Panneerselvam said.

“We have consistently opposed the idea of the GST council as a constitutional body, as it compromises the autonomy of states, including in fiscal matters. In particular, we strongly object to the decision-making rule and voting weightage which gives the Centre an effective veto in the council and makes no distinction among states in the weightage,” the chief minister said.

Despite the state’s objections, the draft Bill proposes petroleum products, currently outside the purview of value-added tax (VAT) in most states, be covered under GST. A decision on when such a tax will come into effect has been left to the GST council.

Bringing petroleum and petroleum products under the ambit of GST will entail huge revenue loss to states.

The draft Bill didn’t include enabling provisions for states to levy higher taxes on tobacco and tobacco products, as allowed for the Centre, Panneerselvam said.

The compensation proposed is 100 per cent for the first three years, 75 per cent for the fourth year and 50 per cent for the fifth. “This is not acceptable to us,” the chief minister said, adding taking the losses to states into account, 100 per cent compensation should be provided for the entire period of five years.

“Considering the state’s past experience with the Centre’s compensation mechanism, both for the introduction of VAT and the reduction of central sales tax, it is doubtful whether a fair, hassle-free and workable compensation mechanism can be devised and implemented. Therefore, it is imperative a consensus be arrived at on the methodology and the period relating to compensation. Further, this should be included in the constitutional amendment Bill,” Panneerselvam said.