States oppose GST Bill as Centre fails to address concerns on petro tax

In a setback to the Centre, the draft Goods and Services Tax (GST) Bill was rejected by the States on Thursday on reasons that it did not address their concerns, particularly on entry tax and taxation of petroleum products.

At a meeting of the Empowered Committee of State Finance Ministers, the Centre's plan to bring petroleum goods under the new indirect tax regime was opposed. They also objected to the Constitutional Amendment Bill as it does not contain provisions for giving States compensation against any possible loss of revenue after GST roll-out for five years.

In a bid to roll out the GST, which would subsume excise and service taxes, the Centre has come out with a new Constitutional Amendment Bill.

The GST roll-out has missed several deadlines because of lack of consensus among states over certain crucial issues on the proposed new tax regime.

"There is no consensus between the Centre and States on these three things (compensation issue, petrol tax and entry tax). The Empowered Committee is not supporting the Bill without these three things," the panel's Chairman Abdul Rahim Rather said after a meeting of the state Finance Ministers.

Rather stressed that the central government would have to respect views of the States.

The States want that the Centre to compensate them for any loss of revenue on implementation of the GST for five years and a clause regarding the compensation be included in the Constitution Amendment Bill, Rather said.

The State governments are also keen on keeping the entry tax and tax on petroleum products out of the ambit of the GST.

"The government hasn't agreed to our recommendations made last time, except one recommendation. We had said that the share of Union government in GST should go to the divisible pool and should be devolved among States, that has been agreed by Centre," Rather said.  

The panel head said that the draft of the new Constitutional Amendment Bill, which was received by the Committee earlier in December, did not take on board the suggestions of the state Finance Ministers. But the panel was surprised to learn that government had agreed with only one recommendation made by the committee with regard to putting GST in divisible pool, he added.

Meanwhile, Rather welcomed the decision of the Centre to release Rs 11,000 crore to States as compensation towards the central sales tax (CST) in the current financial year.

The move will settle the claim of CST compensation up to the year 2010-11, he said, adding that the compensation for latter years would be discussed with Union Finance Minister Arun Jaitley.

CST, a tax imposed on the inter-state movement of goods, was reduced from 4 per cent to 3 per cent in 2007-08 and further to 2 per cent in 2008-09 after the introduction of Value-Added Tax (VAT).

The Centre had then promised the States that it would bear losses due to reduction of CST.

FM Jaitley announced the release of additional funds to the States while replying to a discussion on supplementary demands for grants in the Lok Sabha on Wednesday.

Clearance of CST compensation arrears has been a bone of contention between Centre and States.

As part of the roll-out of GST, the CST is being phased out and has been reduced to two per cent from the earlier four per cent.

The Centre collects CST and distributes it among states.