EC VETOES CENTRE'S DEMAND OF VETO POWER

As was expected, the Empowered Committee of State Finance Ministers in its meeting on 4^th August, rejected the draft constitutional amendment for setting up a GST Council with veto powers for the Centre.

It is learnt that the GST Council as envisaged consisted of representative for each State and the Centre. Any decision on change in rate of tax is to be approved by two thirds majority. The Centre reserved for itself the veto power.

This has been rejected by many states on grounds that the veto power that the draft has proposed for Centre would impinge on their fiscal autonomy'

A number of states, cutting across political party lines, and including some key ones such as Madhya Pradesh, Gujarat, Haryana, Andhra Pradesh, Tamil Nadu and Kerala have refused to endorse the constitutional amendments arguing that they impinged on fiscal autonomy of states.

“This would be an untenable constitutional arrangement, violative of the basic federal structure of the constitution, usurping the sovereignty and fiscal autonomy of the state,” said K Anbazhagan, FM, Tamil Nadu.

States' unwillingness to support Centre's proposal will make it difficult for the government to introduce the constitution amendment bill in the monsoon session of Parliament, which concludes on August 25.

In the face of the growing opposition, the Centre may also not find it easy to push the amendment, as it needs to be upheld with two-thirds majority from both Houses of the parliament. Ironically, the Congress-lead UPA coalition government at the Centre lacks in two-thirds majority in both the Houses. At the same time, it would not find it easy to garner the support of two-thirds states for the amendment, which is also a constitutional requirement.

In Parliament, Mukherjee Said: "The bill (for constitutional amendments) has to be introduced in this session, has to be examined by the Standing Committee, it has to be ratified by 15 states. Otherwise, there will be another delay ... I seek cooperation of the entire House”.

The states have sought at least a month for their response to the proposed legal changes. They have also proposed that the chairman of the GST council should be appointed on a rotational basis.

The demand of states for more time to review the draft Bill could delay its introduction in Parliament. The finance ministry was planning to table it by August 20, but it seems difficult now, as most states want about one month to get legal opinion on the Bill.

States have reservations about the Union finance minister having veto power on state GST, but they do not have any issues in giving him exclusive authority on central GST. On the Centre's proposal to give Constitutional backing to the GST Disputes Authority, the states said it should rather find a place in the GST legislation. The Authority, with three members recommended by the GST Council and approved by the Chief Justice of India, will ensure that states do not deviate from the agreed principles of GST.

Centre would have to give up its demand of veto power if GST is to be implemented from April 1,2011..

PRANAB WANTS PETROLEUM UNDER GST

One interesting development is the plea of the Finance Minister to bring petroleum products under GST.

This would be very positive for Industry as well as consumers. Given that States get about 35% of their revenue from Petroleum products that is at present out of VAT net, it is doubtful if the States would agree.

Trade and Industry should take greater initiative to persuade the States to bring Petroleum products under GST. If States have any fears on revenue loss, it may not be a bad idea to levy non vattable tax in the initial years till revenues stabilize.

Mr.Pranab Mukherjee observed “Petroleum sector is an important revenue yielding measure, 34 per cent of the states' revenues comes from petroleum products. Petroleum prices could be rationalised, if we bring them under GST,”.

Touching upon the recent hikes in prices of petroleum products, he just said it was unavoidable due to perpetual increases in global crude oil prices. One of the fiscal measures to lessen the burden arising out of rise in global crude oil prices is to bring petroleum products as well under the ambit of GST mechanism, Mukherjee said. Allaying apprehension that this would lead to revenue loss for states he said “it will be a win-win game”.

GST IN INDIA: WHETHER A DISTANT REALITY

In the interesting article Mr. Vinod Vashisht, Author, Columnist and Analyst, State level Indirect Taxes traces the Chronology of indirect taxation on Goods & Services in India,  discusses global scenario and the challenges for ushering in GST in India.